Finding the Best Source of Loan for Small Businesses

It is easy to think of starting a business. Though, only a few people could only start taking a business without teletrack since one needed capital for the business to start. There are also additional funds needed to comply with all the external resources and to maintain the growth of the business after the establishment. Money plays a crucial factor in this aspect and one of the solutions to attain it is finding a loan fit for your business.

The Excelsior Growth Fund (EGF) provides an explanation of what to do in finding a loan considering the level of your company. Here are the two stages of starting a small business:

•          First Stage: Start-up

The capital of a starting company is likely to come from equity accounts. The Equity accounts are an investment that has no interest increase and considered to have no growth rate movement. Equity can be used in any form since it is not restricted to one purpose. An example of a source of equity would be your savings, or donations coming from relatives or family members, and angel investors.

The advantage of using equity as a source is that it has no interest when it comes to liability, can be used in any form, and can be used at any time. The disadvantage would be that there would be conflicts when it comes to the ownership of the company.

•          Second Stage: Growth

This is the stage after establishing the business. Here come the additional expenses for the increase in revenues to come. However, it is hard to take on loans in this stage since the business still does not have a secure status. But worry no more since there are alternative lenders that could provide the funds. However, the problem would lie in the conditions of the transaction.

• Alternative lenders are companies that offer loans for starting businesses that need funding. These firms take records of all your business’ receivables and revenues that will be used to repay the loans. The advantage of choosing this option is the great accessibility and flexibility to the transactions, while the disadvantage would be that there is no clarity when it comes to disclosure fees, and the rates can be increased without violating any laws.
• Mission-driven lenders can also be a loan option. This is different from alternative lenders since it is a non-profit community whose objective is to support businesses. The advantage of choosing this option is that the interest rates are low and the terms and conditions are approved by both sides. One of these profit lenders would be the Community Development Financial Institutions (CDFIs).

•          Established Stage: Expansion

This is the final stage of your business where it reaches maturity. It is at this time where you can apply for a traditional loan from banks. This will become very conventional since revenues can be predicted and the flow of cash becomes stable. The advantage of getting in this part is that the interest rates are low and collaterals are possible in use. The disadvantage would be that the accessibility to the account still depends on the past transactions of the business to get approval in getting a loan.

It is no longer a reason that there is a lack of capital to start a business. With all of these money-lending possibilities, everyone can now apply for loan funding to start a business!