SBA Loan Myths: It’s Time to Bust Them

It’s time to bust some SBA Loan Myths!

In this day and age, many people are terrified of getting a loan. These individuals have come to believe many myths associated with the process of getting a loan. These misunderstandings become a tragedy when they prevent people who may be qualified from even attempting to get an SBA loan. There is available funds out there that can be used to help a daring entrepreneur take that first step into starting a new business. In many cases all that this entrepreneur needs to do is take the time to apply. Debunking these myths can alleviate a lot of the fear and anxiety associated with applying for a business loan.

SBA Loan Myths

MYTH 1: There are many people that think that acquiring an SBA loan will require a lot of paperwork and it will take a lot of time. This is a myth. Small business owners who find the right lenders will be able to get this type of loan just as quickly as any other. There are many programs that can be utilized to speed up the process. These programs are automated, and they do not require an access fee. A program like this can reduce the amount of necessary paperwork, and make the entire process go more smoothly.

MYTH 2: Some individuals think that going to a bank is not necessary because they can get a loan directly from the SBA. Unfortunately this is not true. The SBA does not operate by providing grants to individuals who own small businesses. The SBA makes it possible for small business owners to acquire loans by issuing guarantees that decrease the risk involved in lending money to small businesses. An SBA loan must be acquired from a bank that has been given this guarantee.

MYTH 3: There are many people who believe that in order to qualify for this type of loan they need to have a perfect credit score. This is simply not true. Someone with low credit can qualify for this type of loan. It is also not true that these types of loans are associated with lots of fees and high interest rates. The SBA closely monitors interest rates, and they will limit the amount of interest that a lender can charge their customers. They also ensure that most borrowers will be able to get a fixed or floating rate of interest.

Once business owners begin to understand that applying for this type of loan is not going to be an overwhelming ordeal, they are usually more willing to attempt it. Acquiring an SBA loan also begins to seem more attractive once business owners realize that they can get lower fees, and excellent rates of interest.


Calculating Your Small Business Loan Payments Correctly

In order to start a small business, most people need to acquire a small business loan. Business owners that are successful are able to make a business plan that will stipulate how much money needs to be acquired, and have a reasonable repayment schedule. If this is done correctly, then a small business owner will be able to expand their business, and pay back the loan a little bit at a time. Figuring out how much money to ask for can be difficult. Many factors need to be taken into account so that the loan will be big enough to get things rolling, and small enough that a business owner will be able to pay it all off.

 

The first step in this process is to figure out exactly how much money is needed to get things started. This amount needs to be incredibly accurate. It is important for a business owner to know their business inside and out so that he or she will be able to calculate how much money will be needed for the first three years. It will also be necessary to figure out what the repayment period is going to be. This information will come from the loan officer who works in the small business loan department of the bank. This person will tell the business owner what the interest rate is going to be on the loan, and how long it will take to pay it off.

 

The next step is to calculate how much is going to be paid in interest each month on the small business loan. Most banks have an annual interest rate that will depend on the type of loan that is being offered, and the period of time that is being given to pay it off. To figure what the monthly payments are going to be, it is necessary to divide the interest rate by 12 to get a percentage of the borrowed amount. The next thing to do is add one to that number, and then raise it to the negative power of the total number of months allowed in the repayment period. Once this has been done a one should be subtracted, and then this new number should be multiplied by the total amount of money that is being borrowed.

 

Although this process may seem complicated, a loan officer can walk a potential client through it each step of the way. It will be possible to figure out exactly how much money is going to be owed on the small business loan each month. A business owner who has done their homework will be able to apply for a loan that will meet all of their needs, and have a manageable repayment schedule.


Priority #1: Care About Your Business Credit

Why You Should Care About Your Business Credit

Pretty much everyone understands, at this point, the importance of credit for personal finances and transactions. A lot of small business operators, though, neglect to think about the importance of maintaining a good business credit history separate from their personal credit. For the most part, this happens because people think their companies are too small to need their own credit or that the fact that they have not yet started to actively cultivate their debt and repayment history means that they do not have a credit file yet.

This is not true. If you have registered your business name and conducted regular transactions like signing a lease or taking out insurance, chances are that your company has already begun to accumulate its own debt history. Credit monitoring agencies tend to open their own records on organizations, people, and companies at the point where they start working with the kinds of services that conduct regular credit checks. Since everyone from utility companies to landlords to financial institutions does this, it is exceedingly difficult to run a company without leaving some kind of footprint in that arena.

credit-score-thinkstock-456259475-hiThe solution is to take charge of your business credit. Checking your own score and file to make sure there are no inconsistencies is a good place to start. After that, regular activities that make a positive impact on your score can help to manage your company’s history much like you manage your personal history. Regular monitoring, on-time bill payment, and the intentional use of a few short-term debt lines that are kept paid will all help. On top of those things, you should also keep your business and personal accounts, including debts, separate. This makes it easier for your company to have an accurate rating. Once you are able to do so, monitoring the histories and scores of your vendors and suppliers can also be helpful, because it will help you make sure that the companies you rely on to keep operating are also healthy.

Having a good business credit score is important, because it basically determines your company’s ability to grow. Good scores will lead to better terms on leases, freight, and other overhead expenses, since your operation will be considered a “good risk” by those you do business with. More important than that, though, is the fact that your ability to get short-term financing quickly will be affected by the score. This means that if you suddenly see sales skyrocket or you land an important contract that requires outlays for supplies and equipment, you will only be able to grow as much as your score allows. To ensure your company is positioned to take advantage of every opportunity, you need that to keep that score up.


What You Need To Know About Long Term Working Capital Loans

For small business owners, working capital loans can be one of the most useful and versitile tools in their toolbelt. The need for financing is a common one and it is practically guaranteed to be unavoidable at some point. When the need does arrise, choosing this kind of loan provides many different benefits.

Firstly, like all loans, the primary benefit is that you get capital immediately and can then pay them off slowly over time. This is an excellent way to grow your business in ways that would normally be financially impossible, and the increase in cash flow could mean you make more money each month even with your new payments. Alternatively, it might be the only option to continue operating.

However, unlike traditional loans, working capital loans are far more flexible. You can take out a loan for practically any need. Anything from remodels to growth, from purchasing new equipment to repairs, are fair game. The best option for a working capital loan is to use it to increase your sales though. This will make paying them back easier and will make your loan more appealing to lenders.

The other way this kind of loan is more flexible is in their terms. You should have a large amount of control over how long the period you pay it back is. If you think you can handle larger payments to finish in half a year, you can choose to do that. However, most business owners opt for longer terms. Longer terms are much safer because their monthly payments are relatively small. This means there is less chance that you will miss payments. Again, this makes them more appealing to lenders.

The one disadvantage of longer term working capital loans is that the total amount of money you pay will be higher due to interest. This is important to keep in mind. Choosing your term length is essentially balancing risk with your capital. Try to find the shortest term possible that you feel confident about the monthly payment. It is always wise to err on the side of longer terms because your loan should be increasing your income anyway. Paying a little more will be okay in the long run, but failing to meet your payments is never good.

It is important to take all the aspects under careful consideration before you take out working capital loans. Entering into them impulsively is an easy way to generate lots of debt. However, under the right circumstances, taking out a loan can make your business more successful than it has ever been.


Why You Should Consider Unsecured Business Lines Of Credit For Your Business

Any business that is seeking financing has many different options. The most traditional solution is to take out a loan, but that is not very convenient. Loans are slow and strict. They also do not allow for a very large range of applications. Even the very smallest business loans are multiple thousands of dollars. This means that a loan is only a solution for major capital needs, and is completely infeasible for daily or smaller issues. If your financing needs have any of these problems, an unsecured business line of credit is the answer.

A line of credit is a source of capital that can be called upon whenever it is needed. A business will set it up in advance and can then put individual purchases or expenses on the line. In this way, you can finance small purchases that are only a few hundred dollars, as opposed to thousands, which would be impossible to finance with a loan.

The unsecured aspect means the line of credit requires no collateral. This does usually mean that qualifying for it is slightly more difficult because the lender assumes more risk. However, not having to provide collateral comes with its own distinct advantages. For one, a company without a large asset can still acquire an unsecured business line of credit. Also, defaulting on the payment will not result in a major loss.

The biggest advantage of an line of credit is its flexibility. If you set it up in advance, the capital can be accessed at a moment’s notice. Obviously, applying for a loan would be impossible for situations like this. It also allows for purchases of any size to be made. Repaying the money is simpler as well. You can choose several different ways to make payments. Unlike the fixed monthly payments of a traditional loan, a line of credit can be paid all at once, at the minimum rate, or anywhere in between.

The only disadvantage of an unsecured business line of credit is that it is easier to abuse. Because they are as flexible as they are, it is easy to accidentally overuse it and generate debt quickly. It is very important that any business looking to take advantage of a line of credit uses it with a sense of responsibility.

If you are in need of a quicker and simpler source of financing, consider getting an unsecured business line of credit. The flexibility and ease of access make them perfect for daily operation and smaller purchases and their convenience is unmatched by a small business loan.


Invoice Factoring for Oil Businesses

Invoice factoring is an excellent solution to a growing company’s need for liquidity. Expansion requires funding and quickly changing markets often will not wait one to two months for customer payments. When a business needs cash now but only has illiquid resources, the management can call upon a third party to purchase accounts receivable, or invoices. This third party will often be a commercial company known as a ‘factor.’

Also known as accounts receivable financing, factoring affords quick cash within industries that have lengthy production to market processes. For example, oil companies must extract and refine their product before bringing it to market impacting the available cash flow. This type of accounting method solves this frequent dilemma.

 

The Up-front Financial Benefits

Many of factoring’s benefits occur within days if not hours of beginning the process. Essentially, the factor company buys the corporation’s invoices with an up-front sum. This amount is commonly available in as little as 24 hours and covers up to 95% of the unpaid accounts. One of the highlights of this technique is businesses do not need a credit line or good credit score.

Invoice factoring is not a loan, so there are no future payments. You basically receive a liquid advance on your accounts receivable. The factor then collects full payment from your customers and pays your business the remaining invoice amount minus a service fee.

 

The Long Term Financial Benefits

Because this is not a loan, this method will not affect your credit score, and you do not have to record it as a debt. In the long run, you will be freer to acquire better bank loans with more affordable rates should you take on large expansion or modernization projects. You will be able to keep up with the frequent technological advances of the oil industry, thereby increasing profits and paving the way for manageable expansion. As your accounts relievable increase so does your amount of financing. It’s a viable cash flow that will grow in tandem with your business.

 

The Effects of Invoice Factoring

Ultimately, in the oil business, invoice factoring can be a better solution than what your bank has to offer. No crippling interest rates. No long approval period. No worries over the state of your business credit. You get what you need when you need it.

Experienced companies offer adjustable rates as your oil business grows as well as other resources. Companies and corporations can take advantage of broker referrals and accounts receivable insurance. Generally, all that is needed is a quick application and the cash is ready to flow.