Who qualifies for a Small Business Loan?
Lots of businesses can qualify for a small business loans (traditional term loan)—as long as you’ve been in business and are generating revenue with proof of the financial statement.Not all small business term loans are the same, though: the interest rate, length of the term, and maximum loan size depend on your business revenues and financial statement.Since traditional term loans have more extended repayment periods than short-term loans, your business’s financials and credit score are more important.
How Do Business Term Loans Work?
Every business could use some extra cash. Whether it’s for an equipment upgrade, an order of inventory, or a new contract, a business loan could always help out.
But how can you find funding that your business can afford?
We deal with all sorts of businesses here at Sub-Sahara Capitals, and we’ve got some insight into which applications lead to which loans.
Take a look at how a business term loan works—and what you’ll need to qualify for one. That will help you understand whether the business term loan is the right product for you.
Traditional business term loans are a wide category of business financing, available both from conventional banks and alternative non-bank lenders.
Documents you need:
- Driver’s License
- Voided Business Check
- Bank Statements (3-6 Months)
- Balance Sheet
- Profit & Loss Statements
- Business Registration
When Should You Use a Business Term Loan?
The point of a business term loan is to help you finance something big for your business.
Whether you need to make specific equipment or inventory purchase, want more working capital, need to refinance other business debts, are looking to meet tax or payroll obligations, or something else entirely, an SSC in partner with Investors can help you out.And as it turns out, there are few loan use restrictions, if any—though, generally speaking, it’s best practice to spend that money creating more revenue for your business.Since borrowing isn’t free, you want to come out of a loan with more money than you began with. It’s all in the planning ahead.If used the right way, Sub-Sahara Capital business term loans can help you push your business to the next level—introducing new equipment, locations, products, or marketing campaigns into your toolbox.
Plus, remember that a business term loan is predictable.You should be able to figure out whether a loan will help or hurt your business from the get-go. Just understand the calculations beforehand and plan the coming months or years of spending carefully.
What Will a Business Term Loan Cost You?
You should know how much the financing will cost you no matter what type of investment you’re applying for.
Thankfully, the SSC price tag of a business term loan is pretty easy to figure out, and it tends to be moderately affordable.
Example of a Business Term Loan
Let’s say you’ve qualified for a business term loan. In this business term loan offer, you’re borrowing $25K from a lender at a 3.5% interest rate and a 5-year term.
Given the longer length of that traditional term loan, you’ll most likely have a monthly payment of about $456. (Business Term loans can come with weekly installments, too.)
That’s a predictable expense; you can easily understand and map your financials around.
Small business term loans, like other business loans, can also come with fees attached to the loan. These fees could be origination fees, packaging fees, prepayment fees, and so on.
Don’t overlook fees on your loan offer—be sure to factor any and all small fees you might have to pay in order to understand the actual cost of your loan.
Breaking Down Each Term Loan Payment
Here’s the thing with business term loans: not every payment goes toward the same thing.
Traditional term loans amortize, which means you don’t pay equal parts interest and principal (or the amount you borrowed) from month to month. Alternatively, lenders usually accumulate interest payments early on and leave your principal payments for later on in the life of your small business term loan.
That way, even if you pay your loan off early and get the rest of the interest forgiven, you’ve still paid most of it to the lender.
This means that you might save less than you’d think by paying your term loan off before it’s due.
However, your monthly payment is still the same amount—it’s just the proportion of interest to the principal that changes.
To understand your loan completely, make sure to ask your lender for an amortization plan.
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