On average, small business owners need capital to run their businesses but, in many cases, tap into their personal savings or more importantly use their personal credit to finance their projects or needs. This article identifies different aspects of small business term loans which are not reported to personal credit. We also recommend several loan products which small business owners can attain even with minimal business credit.
Small Businesses Need Working Capital
Regardless of industry, according to the SBA over 50% of all small businesses have borrowed money in the past 5 years. In most cases, small business owners cannot find financing through the SBA or their banks because of the rigorous and sometimes impossible guidelines that banks have for lending to small businesses. Therefore, many small business owners seek working capital from Internet or alternative lenders. These lenders can have various rates and programs for small business owners to take advantage of.
Small Business Owners Should Avoid Loans that Hit Their Personal Credit
On average, small business owners tend to pour their hearts into their small businesses. They also pour their personal funds into their businesses as well. BRP Onesta’s Chief Operating Officer Todd Davis heads the company’s commercial lending division. Todd shares that many small business owners who work with BRP Onesta tend to liquidate their credit cards and personal funds for their small businesses. “Time after time I see small business owners using their personal credit to fund their businesses. Small business owners can use various tactics to move money but, in the end, they tend to have higher utilization and lower credit scores.”
Small Business Term Loans: The Key to Small Business Success
Instead of overworking personal credit, small business owners should consider small business term loans to fund their businesses. Small business loans can reduce reliance on personal credit, improve personal and business cash flow, build business credit, and in many cases avoids personal guarantees which personal credit can attach.
Types of Term Loans
There are several different types of term loans but for the purposes of this article we will separate these loans into short-term loans, mid-term loans, and long-term loans.
Short-Term Business Loans are usually paid back in terms less than 18 months. Terms and interest rates can vary on short-term loans. Invoice factoring, lines of credit, and internet loans are good examples of Short-Term Business Loans.
Mid-Term Business Loans tend to have longer repayment periods, up to 60 months on average. For instance, equipment loans can have terms up to 72 months and have monthly payments. Some of these loans might be collateralized. However, in many cases for a longer termed loan like a mid-term option the lender may ask for collateral.
Long-Term Business Loans tend to be loans that range from 5 to 10 years in term. Banks and credit unions tend to be very difficult to attain. We have written about this extensively and a small business owner is more likely to get struck by lightning than get an SBA loan. If you are also lucky enough to get a bank loan or an SBA loan it can take up to 6 months to get. Short-term and many mid-term small business loans fund in a matter of hours or days.
Comparing and Contrasting Business Term Loans
No reliance on personal credit.
Faster turnaround to funding from application for shorter-term loans.
Lots of different options to choose from.
Many products lack credit requirements and new business owners can get funding (Shorter-Term Loans.
No personal guarantee on most products (longer-term loans will require collateral).
Slower turnaround .
Fees for origination and underwriting.
Rates can be higher for those with lower credit.
Suggested Small-Business Loans
Not sure what type of Small Business Term loan to apply for? Here are several options for you to choose from.
Dr. Thomas Tramaglini is the Managing Director for BRP Onesta, a company that supports small businesses. By offering a host of important and affordable services that small business owners tend to not have time to do themselves, the team at BRP Onesta can help small businesses grow infinitely. Although located in on the famous Jersey shore, BRP Onesta serves clients in all 50 states, Puerto Rico, Mexico and Canada.