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Like most good things, small business loans don’t come handily. Compared to personal loans, they entail a higher risk for the lenders, resulting in more stringent eligibility requirements. With many businesses wanting to get a business loan, they may be uncertain whether they qualify for it.

If you are one of these enterprising owners looking to get an SBA loan, don’t fret! Here’s everything you need to know about the requirements for an SBA loan:

  1. Credit

Lenders are keen on looking at both personal and business credit history. However, since many small-business owners don’t have business credit, your personal credit score becomes more significant. Typically, you will need a credit score of at least 600 to qualify for an SBA loan.

  1. Cash Flow and Income

Cash flow is a representation of the status of your business, and it can make or break your application. Remember, lenders like to see that you have a healthy and steady stream of cash to ensure that you are capable of sustaining your loan payments. Moreover, lenders may also scrutinize your business expenses to know how profitable it is.

  1. Business Age

Unfortunately, around 20% of businesses go under within their initial year. It’s not surprising that most lenders and banks require a minimum business age for their borrowers.

For most loans, businesses must be from six months to two years old. However, be reminded that lenders don’t take into account how long the company has been registered with the government but instead on how long its bank accounts have been open.

  1. Industry

The kind of industry where your business falls can significantly affect the decision making for most lenders. Keep in mind that many lenders steer away from specific industries that are risky. Businesses considered to be socially unappealing or those that are seasonal and don’t have a steady cash flow are more likely to be rejected.

After getting approved for a business loan, it would be up to you to use it responsibly and reap the benefits it can give to your business. However, we understand that any business is a risk. So, whether things go your way or the other, don’t worry as you can always consult a Tampa business broker to help to achieve that win-win situation.

in so that the business can be sold fast. No investor would put money into something that has no future.

Bank Loan Illustration


Every small business owner faces the challenge of funding. Getting your hands on cash is close to impossible. Lenders are not very willing to infuse capital into a business without a guarantee that the business will be able to repay the loan. Bank loans have been the go-to source of capital for small businesses since time immemorial, but things are changing. It is becoming harder to get approved for a bank loan nowadays. Thanks to advancement in technology and internet use, small businesses now have other ways of accessing capital to expand their businesses. As long as you have basic knowledge about tech, it is easy to fundraise through online platforms. By now, most entrepreneurs  have heard about crowdfunding, as an alternative to bank loans. Let us compare bank loans with crowdfunding.

Bank Loan IllustrationBank Loans

Taking bank loans is a traditional approach whereby small businesses make use of financial institutions to request for capital. Some of the pros and cons of bank loan include the following.

Advantages

Accessibility And Convenience

Bank loans are accessible since banks pool funds together, from customers’ deposits. They always have funds due to regular deposits by customers. Furthermore, It is convenient for you if you have been a frequent customer to that bank. Most banks offer loans to their loyal customers.

Non Profit Sharing

Banks only care about the interest they charge on the loan and repayment of the principal amount. They do not care about your profits or owning part of the company in exchange. This way, you can retain all the profits.

Disadvantages

Strict Requirements

Securing a bank loan requires that the business offers collateral in exchange. Most small companies and startups do not have any assets to use as collateral. The issue of documentation also limits the uptake of bank loans. Most banks will ask that you provide documents such as the business plan, financial statements, a down payment which have to be approved. Approval may take up to 6 months, and this is a lot of precious time wasted, on the side of the business owner.

Repayment Schedule

Banks expect that the borrower adheres to the repayment schedule without fail. Defaulting may have a significant impact on the borrower’s future credibility and credit score. Taking a loan is risky if your business fails to produce good results, as it creates a massive burden on the business owner. Furthermore, banks tend to charge a hefty penalty for early repayment of the loan, and this is a loss to the borrower.

Bank loan vs. CrowdfundingCrowdfunding

Crowdfunding involves social lending such that a small business owner asks a number of people to each loan them some small amount of money, creating a large pool of capital in the end. It is done through online platforms.

Advantages

Application Process

Application for crowdfunding is not complicated. The business owner is required to set up a campaign on a crowdfunding platform of their choice. They then market their product to the clientele. The aim is to raise sufficient funds from the public in exchange for some reward or equity. The campaign period is not as long as a bank loan application period. As soon as the business owner reaches or exceeds their fundraising goal, you are good to go. Furthermore, the campaign is a marketing strategy for your product. If many folks like what you are offering, the demand for your product or service increases, and this is a win on your side.

Little Financial Risk

Crowdfunding allows you to test the waters and see whether your idea is viable. Once you put it out there, you can get feedback from your customers, and this will guide you as to whether you should proceed with your business plans or not. It saves you a lot of money which you would have used to purchase inventory, materials and do research. You would rather fund a proven and viable business idea that customers approve, as opposed to funding an unproven business idea.

Disadvantage

Creating a successful campaign requires a lot of time, money and effort to write compelling content, build a functional prototype and market the idea. The downside of this is that the campaign may still be unsuccessful after you have spent so much money. Furthermore, there is a high risk of someone stealing your idea if you have not patented it. Even if your idea is unique, someone may still try to copy some of the concepts to build a better idea.

 ~ Another way to get an infusion of capital is to consider merging with a larger company, though you don’t want to do that without professional help.  For Mergers and Acquisitions advice, please consider Tampa Business Broker, Dave DeCamella, who has over 9 years of experience as a business broker and over his career in commercial and residential real estate sold over $100 million of real property.

Small business can only expand and compete effectively with rival companies if they have a reliable source of funding. A small business owner has to weigh the pros and cons of bank loans and crowdfunding and make a decision on which route to take. You must be willing to risk something for you to get results in return.

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