What is a Business Plan?

A business plan is a written outline that you present to business financiers, whether traditional financial or alternative lending institutions, whom you hope to finance your venture. With a solid business plan, you can pitch to investors and funding organizations, allowing you to share the goals of your business idea and the milestones you need to reach to build a profitable business. A successful business plan also guides your company through an established roadmap to ensure you are on track to meet the goals outlined in your plan.

Do you Need a Business Plan to Get a Loan?

A business loan is funding that a financial institution provides to a business or company for it to run its daily operational activities. If you want to secure financing for your business, you will have to write a business plan that answers many important questions about your business plans. 

The following are some of the reasons why a detailed business plan is integral to the bank loan application process:

• Establishes Authenticity: A loan proposal plan allows you to demonstrate to the lender you have in-depth knowledge of your business, its capabilities, and how it operates within its industry. Since it is a clear and concise document, a business plan also makes it much easier for lenders to understand how you arrive at your numbers, including loan payments. 
• Provides Clarification: A plan also provides an opportunity for the lender to ask questions and seek clarifying details that may not be clear from your application information alone. This way, the lender understands what they are loaning money to and how they will recover their funds. 

How to Create a Business Plan for a Loan

Business plans have different sections depending on the objectives. However, any business plan template will have the following key sections:

Executive Summary

The executive summary is one of the most crucial elements of your business plan. An executive summary acts as a snapshot of your plan and provides a general overview of what you are proposing. It is designed to capture the reader’s attention and briefly explain the key components of your business, including the objectives, the problems you intend to solve, your target audience, and primary financial information, including financial projections. When writing this section, include the following details:

• A statement detailing the reason for your business loan application
• Details on the amount of funding you want to borrow, your repayment plan, and the interest rate
• A clear description of how you will you the loan
• Details on business financial information (past financial records and financial projections)
• The impact that your business loan will likely have on your company and the entire industry

Company Description

A company description or a business description summarizes what your company does, its purpose, and what makes it unique. It is a crucial segment of your business plan following your executive summary. Because it is one of the first pieces of information your potential lender sees, a good company description makes for a great first impression. The following are some of the elements to include in a business description:

• Business Name: List the official names of your business and include the names of the owners and critical members of your management team.
• Business Structure: list what type of business you are operating. It could be a limited liability company (LLC), a sole proprietorship, partnership, or any other type of corporation.
• Business Goals: provides details on the purpose of your business, including what you aim to achieve with your business. This should cover both short and long-term goals.
• Target Customers: provide details on your target market. Explain the people you sell to and why they will purchase your service or product.
• Competitive Advantages: detail what makes your business unique from your competitors. Mention the things that will make your company succeed and become a front-runner in the market.
• Business Location and Opening Dates: include business headquarters and all the areas of operations. You should also share when you plan to open your business if you haven’t already.
• Products and services: mention the products and services you are offering the customers.

Industry / Market Analysis

Industry analysis or market analysis provides a general assessment of the industry environment where you compete. Your analysis provides the dynamics of the market, including its size, potential, and risks. Excellent industry analysis provides the following information:

• The strengths and weaknesses of your industry
• The strategies you will employ to compete in your industry
• The trends in the industry that can affect its future success
• Potential risks and struggles
• A specific niche in the market

Customer Analysis

The customer analysis section in a plan helps the lender understand your target customers and why they will buy from you. When writing this section, include the following information:

• The target audience and individual customer segments
• The number of potential customers within your target market
• The much the customers spend now and in future

Competitive Analysis

A competitive analysis section overviews the industry’s competitive landscape and how you plan to compete against your competitors. Include the following details when writing a competitive analysis section:

• Your competitors’ strengths and shortfalls
• The strategies you will use to outcompete them
• Your companies competitive advantages over the competitors

Marketing Plan

This section provides details on your marketing strategy. It should include customer acquisition costs and the strategies you will employ to reach potential customers. It should also mention the people responsible for implementing each part of the marketing plan as well as the marketing costs.

Operations Plan

An operation plan section describes how your company operates currently and how it will operate once the loan funds are injected. Mention what you have implemented in the last 12 months that has resulted in increased revenue, decreased expenses, and improved efficiency. You should also mention your plans to operate efficiently with the proceeds.

Management Team

The management section describes the personnel structure of your business. It details the names and responsibilities of each member of your team. It also provides their qualifications and how their roles will change once you receive the loan proceeds.

Financial Plan

The financial plan section of a business plan describes your company’s financial statements, including your projected balance sheet, projected income statements, and cash flow statements covering the next 3 to 5 years. You should also provide a five-year break-even analysis while explaining how you arrived at your cash flow numbers. Remember to include interest and loan repayments.

Appendix

The appendix section provides all the supporting documents for any claim in your business plan. The documents may include:

• Loan agreement
• Applicable business licenses and permits
• Organizational chart
• Resumes of members of the management team
• Copies of contracts, leases, and other agreements
• Complete financial statements and projects

Attach these documents to your business plan in a separate file when applying for a business loan.

Get Fast and Affordable Small Business Loans from Santander

To finance any business venture, a traditional business plan is essential to convince lenders or investors that they will see a return if they decide to invest in your business. If you have done your due diligence in this regard, and you are still struggling to find advantageous financing, Santander can help. 

Santander provides convenient small business loans to companies across United State. Serving a wide range of industries, Santander can help you secure construction loans, equipment loans, loan refinancing and much more. If you have questions about getting the right financing for your business, contact Santander to speak with an expert. 

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Most entrepreneurs start with a few things figured out and work their way through the challenges as they come by seeking out expert advice as needed and working hard to stay informed about other resources, through free and paid programs, that may come in handy. 

Essential Business Resources

Although anyone can become an entrepreneur and start a small business, achieving success requires access to several vital resources. One of the most important resources for small businesses is access to capital, often in the form of small business loans. These loans can provide the capital that small businesses need to seize opportunities and grow, however, accessing small business loans can be difficult, especially for businesses that are just starting out. In addition to access to sufficient working capital, the leaders of successful businesses need the drive, determination and ability to work hard while making adjustments. Without these qualities, it will be difficult for entrepreneurs to achieve success.

With that in mind, here is a quick overview of the many resources small business owners and entrepreneurs should keep in mind as they work hard to grow their new business. If you can line up these various resources, you will find launching and scaling your business online much less intimidating.

Small businesses require a number of resources in order to operate. These resources can be divided into three main categories: human resources, financial resources, and physical resources.

Human resources includes employees, managers, or consultants who meet the business needs of aspiring entrepreneurs in all areas, ranging from email marketing advice to help setting up online stores, optimizing business processes and more. Financial resources include financial planning and efforts to raise money, whether through crowdfunding or traditional financial tools, such as loans, lines of credit, or personal savings. Physical resources are the tangible assets that the small business uses to produce goods or services. This can include land, buildings, machinery, and inventory, as well as IT infrastructure and software, such as project management tools or workforce management software. 

Support To Build Your Own Business

Opening a small business is an uphill challenge, and it takes a lot of work to turn a small business idea into a successful company. 

Starting and maintaining a small business is no easy feat. There are a million and one things to worry about when people run their own businesses, from keeping up with demand to managing finances. It can be easy to feel overwhelmed and alone. That’s why it’s so important for small business owners to have a strong support network they can rely on. Whether you need emotional support, financial resources, or expert advice, your family, friends, and mentors can provide invaluable assistance. Having a supportive network will help you weather the ups and downs of owning a small business and increase your chances of success in the long run.

Funding Resources for Small Business Owners

To turn business ideas into reality, it requires access to operating space, equipment, and employees, on top of all the required small business administration framework. 

One of the largest challenges for a small business owner who is just starting out is figuring out how to get the right kind of financing to meet their cash flow needs. Even relatively simple business models, such as an online store, can have significant – often underestimated – ongoing and startup costs baked into their makeup. 

There are a number of resources available to help with this, including the local chamber of a business development bank, government programs, private lenders, and crowdfunding platforms. However, each option has its own set of pros and cons, so it’s important to do your research before making a decision. Government programs may offer low-interest loans or grants, but they are often slated for a particular group, such as women entrepreneurs, or have other eligibility requirements that make them unattainable to you. Private lenders may be more flexible, but they may also charge higher interest rates. And while crowdfunding can be a great way to raise capital, it may not be suitable for every business. 

Even if you can obtain funding from a traditional source, bank loans often take time and are not immediately available which may not be an option for independent businesses that need capital or access to a line of credit now. Online lenders, such as Santander,  help solve this problem for entrepreneurs. 

If you need some financial help to reach the goals in your business plan, contact the experts at Santander to learn more about their options, and you will quickly see why getting small business loans online is one of the easiest ways for small businesses to obtain financing.

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No matter the reason, if you are set on building a new home, a construction loan is often the best way to get started. To pay for the construction itself, a traditional mortgage loan is not an option. Construction-only loans are just that; they are loans that cover the cost of construction period, and carry their own interest rate and payment terms. Construction-to-permanent loans are slightly different – they include both the construction loan and the permanent loan to pay it off.

Before jumping into how refinancing works or how to find the right mortgage lender for you after construction is finished, let’s take a deeper look at what a construction loan in Ontario actually is.

What is a Construction Loan?

Construction loans (sometimes referred to as “self-build loans”) are just what they sound like: short-term loans used to finance the building of a home.

Construction loans are considered higher-risk loans because they are not backed by the same quality of collateral, as you would see with a traditional mortgage. Repayment is also due fairly quickly. For this reason, the downpayment on a construction loan can be hefty, with typical percentages coming in as high as 20%-25% of the total estimated construction cost. Repayment of the construction loan is due immediately after the construction period comes to an end. 

This high bar for entry is one reason why some people don’t consider a new construction loan and opt for the purchase of an existing home instead, complete with a traditional mortgage. If your credit report changes between the start of the build and the end of the build, you could have trouble refinancing your loan, leading to higher interest rates. 

Refinancing Your Construction Loans

In many cases, the person or company taking out the construction loan will also negotiate a traditional mortgage to pay off the construction loan at the end of the build. This is called a “construction-to-permanent” loan. Very often, they receive both the construction loan and the mortgage from the same lender for convenience. 

In this case, instead of a two-step process, in which a borrower must pay closing costs twice, a more streamlined agreement is reached, and refinancing is not necessarily required. However, for this convenience, the lender gets a little bit of leverage when negotiating the interest rate of the traditional mortgage, and may not give you as good a deal as you would find elsewhere.

Others may prefer to separate the process into two parts, a construction-only loan, and then a mortgage to pay that off, hoping to find a lender that will offer them a lower mortgage rate than they would find in a construction-to-permanent situation. There is a danger in doing this, because the average construction project takes 18 months to complete, and economic conditions (or your financial readiness) might change. Higher interest rates could raise the overall cost significantly over the long term, and you might not find the low rates you wanted by shopping around.

If you used the same lender to finance the construction loan and related traditional mortgage, you can’t really refinance. If you did not do so, you will be refinancing, perhaps using online loans in United State to find the best borrowing options, with interest rates that better fit your needs.

How Soon Can You Refinance a Construction Loan?

If you only have a construction loan, you can and must find a new mortgage to pay it off at the end of the build. In this sense, you are not re-financing, but financing for the time by negotiating the traditional mortgage with the lender of your choice once the construction period is over. 

If you have a construction-to-permanent loan, you have effectively already negotiated two loans in advance (the construction loan and the subsequent mortgage to pay it off), and you can refinance. In this case, you may threaten to walk out on your first agreement unless the lender matches the lower rate you found elsewhere for your traditional mortgage.

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Here we’re going to focus on the latter and explain what a short term loan is, what it’s often used for by businesses, and how it can be important for your own business needs. Let’s dig in.

The difference between short and long term finance

Short term financing is where a borrower is obliged to pay back the loan in a relatively short time frame. Usually, this is defined as any loan period of less than a year, though this arrangement can be slightly flexible in either direction. For example, short term finance can have repayment terms that extend to as much as 18 months.

Other qualities that are common to short term loans include any of the following:

• Quick application processing and funding
• Easier qualification than long-term loans
• Lower capital outlay
• Much shorter repayment terms
• Typically smaller amounts (relative to long term finance)
• Typically higher interest rates

Short term loans vs long term financing

Short term financing can be used for business expenses such as unexpected cash flow needs, inventory purchasing, unexpected expenses, for minor hardware or equipment requirements, etc.

On the other hand, long term financing usually involves larger lump-sum amounts intended for major investments like entirely new lines of business equipment, real estate purchases or even buying an entire business, such as a competitor in your niche.

One important thing to note about many short term financing plans is that while they usually come with a slightly higher interest rate, their overall cost ends up being lower over the long term because your total outlay in interest payments is smaller in aggregate.

Why you should consider short term financing

One important thing to keep in mind about running a business is that sometimes, a quick infusion of short term financing cash can be enormously helpful for strategic investments in things that will help you sell more or grow.

Larger financial institutions like banks will often take too long to deliver. The red tape and conservative nature of commercial banks will sometimes lead to them refusing to lend to a small or medium-sized business, even it it is relatively healthy.

Alternative lenders like Santander can be a much better choice. They know that paying out a smaller amount over a shorter period is not as risky as the banks think it is, which is why they will be more likely to approve your short term financing application.

After all, it’s usually less risky to expect enough business solvency within a year or less for repayment of a moderate loan than it is to bet on a company being able to pay back a larger loan across a decade or longer.  Santander offers competitive, quick and streamlined construction business loans, restaurant loans and others.

Better than the banks

You should consider short term financing for your business through a company like Santander simply because you’re more likely to obtain it, and more likely to be approved for this type of financing without jumping through as many financial hoops. If you feel a strong, strategically beneficial need for the cash involved, then the loan is a good choice. Furthermore, these types of loans can often be processed in as little as 48 hours.

If you own a small business or one that’s growing but still relatively new, short term financing might be one of your only reasonable loan options for an emergency cash infusion, particularly if you have a good personal credit score.

Types of short term financing

While all short term financing is short term in nature, it does come in several different varieties. There are several types of small and large business line of credit funding models that can be considered sources of short term financing. These include:

Short-term small business loans 

Small business loans with short term financing repayment terms are likely to come with a relatively low interest rate that’s more on par with that of a regular business loan. These short term loans often range in scope from 3 to 18 months and can have interests rates of between 5.5 and 10%, though this will vary depending on the unique needs of your business.

Business credit lines

These are some of the most easily available and flexible lines of short term financing you’re likely to find. They’re very similar to credit card limits in that you’re only going to repay what you spend from a certain maximum credit limit that you’re free to use or not. Your interest will be calculated off the credit you use instead of some total lump sum loan.

Invoice financing plans

Your pending invoices from customers or clients can also serve as a type of asset, because they represent an obligation for payment by someone else. This makes them collateral for short term loans called invoice financing plans, which let you secure and advance on pending invoices in exchange for a small percentage fee and a weekly interest rate for as long as an invoice goes unpaid.

Trade credit

With trade credit what you get is a very simple form of short term financing in which a vendor offers to a period of time before you need to pay for purchased inventory. Thus, you might get 28 days or a couple months to sell certain goods and then cover the trade credit amount owed for them.

The above are just a few examples of short term financing options. They’re often offered by both banks and alternative financing institutions. The main difference between these two sources is that a major financial institution or commercial bank is often more conservative about who it lends to, while alternative lending providers impose fewer barriers on short term loans, even if they charge a slightly higher loan interest rate.

How much short term financing can you get and how quickly?

The maximum amount of money that a short term financing loan involves can vary in the industry, but Santander loans range from $5000 up to $150,000.

For example, Santander offers loans in this exact range to business than include retailers, car dealerships, construction companies, restaurants and others. While Santander does usually charge slightly higher interest rates than a large bank for its short term financing, its terms are much better than those of most merchant cash advance lenders. What’s more, Santander can approve your loan application in as little as 48 hours after an online application process, and offer reasonable monthly payments.

The post What is Short Term Financing Used For? appeared first on Santander.

Although some businesses still get off the ground that way, many more employ novel and creative ways of finding their funding. There are many examples of small business owners who were able to secure their required capital by being clever, diligent and persistent in pursuing financing solutions. So, let’s get started on what small business financing options are out there, and what you should keep in mind when trying to figure out how to finance a small business with no money. 

What Do You Hope to Accomplish With a Business Loan?

Before you even start looking for financing options for your small business, you should first ask yourself several crucial questions that can help you define just what it is you hope to accomplish and what you need to accomplish the goals set out in your business plan. 

These questions will help you clarify your business goals and the type of financial decisions you will have to make in support of your goals. Some of the important questions to ask yourself include:

How much money do you really need to start your business? 

Are you absolutely sure that you need external financing? Also, ask yourself what you can do to minimize this need without compromising your business idea’s chances of success.

Tally up how much of your own money you can use for the business idea. 

The more you can offset your need for financing through your own personal investment, the better, as long as your business idea doesn’t drain your personal funds. 

Examine what non-financial assets you can use for your business for the time being. 

This too can offset your financing and debt accumulation needs. For example, starting a landscaping business and you already have a full-size pickup truck? Use that to start off instead of buying a new one.

Take stock of your overall financial situation and your available lines of credit. 

Ask yourself which sources of financing are likely to be most favorable to your situation. Depending on your personal credit score and small business administration experience, there could be traditional forms of financing that meet your needs. 

As much as possible, figure out if the timing is right. 

Is now the right time to set out on a new business venture? Just because you’re excited about launching a new business doesn’t mean it’s a good idea. Starting a new business takes an immense amount of time, energy and commitment, so be sure that you are up for the challenge. 

If your existing financial situation is stable, you can always postpone until you’ve saved up more of your own startup costs, or until you’ve refined your idea further.

Traditional Sources of Financing

First, let’s start with the obvious small business financing sources that might be your first rank of accessible options. These aren’t necessarily better, they’re just more likely to be immediately accessible.

Personal Savings

Many successful business people and investors borrow to fund the growth of their fortunes. But avoiding the use of personal assets to protect against the possibility of failure, remains a tested and true way of protecting accumulated wealth. 

If you are prepared to risk your own personal wealth because you believe so strongly in your business idea, using your own personal savings is a great way to minimize your debt and have total control over your new business right from day one. 

Loans From Friends and Family 

Personal loans from family and friends can be a fantastic source of capital simply because they’re more likely to be free of bureaucratic hurdles, delays and strict conditions, always choose them with a grain of caution though. 

You don’t want to ruin your personal relations because of bad debt. Be sure to draw up a specific written agreement for any money you borrow though, and mutually keep track of any debt repaid. Casually borrowing a few hundred bucks might not be a big deal for a handshake agreement, but if you’re asking family and friends for several thousand dollars or more, the details should be taken seriously and put in writing.  

Business Loans

If you want to leave your own savings on standby and your personal circle isn’t swimming in funds for loans, a traditional business loan from a bank, or other financial institution, is another option. 

Most banks tend to be conservative organizations and qualifying for a business bank loan isn’t always easy. However, if you can convince an institution to hand over part of your startup costs, you’re likely to get a tolerable interest rate.

Keep the difference between short-term loans and long-term loans in mind. The former are likely to have higher interest rates but the latter will probably need to be collateralized with business or personal assets. Also remember that your bank will definitely ask for plenty of documentary evidence of solvency and business viability through positive cash flow financial projections, so be sure to do your due diligence and exhaustive research before ever filing a loan application. 

Equity investment

If you want to avoid debt completely and know people who will trust you to succeed with your business, equity investment is a great option. In exchange for an equity stake in your company, you can find investment to help with startup costs. If you’re able to choose this option, remember a couple key things though:

An equity stake means partial ownership. 

If you offer up more than 50%, you effectively lose control of your own business. This is something you need to keep in mind if the people offering to buy in might later want to interfere.

Draw up a very specific contract of equity conditions with your investors. 

Firmly agree on what they receive in exchange for their stake and how much say they will have in business management. Also clarify how assets will be handled if the company fails. It’s wise to consult with a business contract lawyer, if you end up going this route. 

Alternative Sources of Financing

Not all sources of small business financing need to be personal, equity or bank-based. Excellent alternatives also exist if you creatively look for financing. Here are some excellent options that might work even better than traditional choices.

Government Programs

Government funding is usually a form of loan financing with flexible interest rates and repayment schedules. It’s possible to find small business funds from the government but remember that they’re not common. In United State, a very small minority of businesses manage to pay for themselves with government funds.

The government does however offer helpful programs and in some cases might even be willing to underwrite loans from private banking institutions. The United State Small Business Financing Program is one example of a resource.

Venture Capital Firms & Angel Investors

Most people associate venture capitalists with huge funding rounds for the next great unicorn tech startup, but the truth is a wide range of start up companies raise money from venture capital (VC) firms. 

VC funding and angel investments are basically a form of equity funding, because you will be handing over a stake in your small business, so read the fine print if you can secure it. If you’re creative and diligent enough, there are venture capital programs out there for small businesses that aren’t looking to be the next Google. Keep in mind, though, that VC funding is usually technology business oriented.

Online Lenders 

Finally, don’t forget about the enormous potential of online lending services. These non-traditional digital lending platforms can offer a very flexible and much more accessible range of lending options for your small business financing needs.

Santander, for example, offers simple, rapid online qualifications and funding for small business loan requests of anywhere from $5,000 to $150,000 at highly competitive business loan interest rates. 

They also serve a broad, flexible range of industries. But more importantly, they can be much more flexible than a conservative, traditional bank when it comes to your financing needs and application process.

Santander – Small Business Loan Solutions, Simplified

Santander starts from the perspective that small United State companies should be treated better, centered on the belief that business owners should be able to get fast and straightforward small business loans without overpaying. 

At Santander, their online application process only takes a few minutes to complete, allowing you to instantly pre-qualify online and potentially receive up to $150,000 in financing within 48 hours. Ready to take your business to the next level? Apply today!

The post How to Finance a Small Business With No Money appeared first on Santander.

Some lenders will charge a high standard rate to each borrower, regardless of their personal circumstances. When you apply to Santander, we offer fixed-rate loans customized to your business profile. Our loan process is faster than that of a bank, and we don’t need any collateral or charge hidden fees. Getting a small business loan should be a simple, straightforward process, so we make it that way!

Below, we explain the differences between fixed and variable-rate loans to help you make an informed decision for your business.

What is a Fixed-Rate Loan and a Variable-Rate Loan?

Payments can remain the same or change throughout the life of a loan. A fixed-rate loan has an interest rate that does not change over time. Payments are determined by the loan amount and interest rate provided by the lender, meaning that monthly payments will suddenly increase. 

With a variable-rate loan, the borrower makes payments that have a different interest rate each time during the life of the loan. It can be beneficial since the borrower can get a better interest rate over time as the market interest rates change.

Fixed-Rate Loan

Fixed-rate business loans can be cost-efficient if you lock in a low interest rate. However, a variable-rate loan would be the better option if the rate decreases after you’ve locked in a fixed-rate loan. With longer loan terms, borrowers face more interest rate risk, so fixed-rate loans offer less risk compared to variable-rate loans.

The biggest benefit of fixed interest rates is that your small business’s monthly payments won’t change each month. It provides stability, predictability, and peace of mind that some owners value more than variable interest rates. You will save time from consistently adjusting your budget and projections.

Variable-Rate Loan

Variable-rate loans usually have a lower introductory rate than fixed rate loans, making them more cost-effective, so long as interest rates remain low. However, variable-rate loans are riskier than fixed-rate loans, especially if the loan has a long term.

How Small Businesses Can Choose the Right Loan

You know the loan options available to you. Now, you need to weigh a few factors to help you decide the best course of action for your business and finances. These factors include:

• Loan Length: Short-term loans that have a variable interest rate can seem like a reasonable choice, however, all your diligent financial planning can go out the window if rates increase. For cost certainly, our construction business loans are designed for short terms to finance construction projects or construction companies for about a year.

• • Risk tolerance: Review your cash flow. If the risk of paying more interest later on during the loan’s life is too high for your small business, a fixed-rate loan is your best option. If you have a type of eatery, from a pub to a food truck, that’s generating a stable revenue, check out our restaurant loans.
• Potential future interest rates: Take a look at the current market and inflation rates to determine which way the wind is blowing. With this information, the length of loan you need, and your business’s risk tolerance, you can make an informed decision about which type of rate you should get.

If you’re still not sure about the type of loan you need, our Santander financial experts can provide you with more information on fixed and variable rates.

Get a Small Business Loan with Santander

Santander’s small business loans come with a fast approval process, allowing you to get funds within days. Our advisors will review your business to find you the best interest rate structure for your needs and goals. 

Get started today!

The post Are Small Business Loans Fixed or Variable? appeared first on Santander.

With a secured loan, the borrower bears the risk, whereas the lender has more of the risk with an unsecured loan. Because of this, small business owners will be asked to pay a higher interest rate in the latter case. 

Our Santander experts will help you to determine which small business loan is best for you.

Types of Small Business Loans

Small business loans are offered with varying terms and conditions that will impact your experience. These factors include: 

• Interest rate
• Repayment terms
• Lender claims on the business or personal assets
• Length of the loan

In order to survive and thrive, small businesses need access to responsible funding solutions. Here’s the breakdown of what secured and unsecured loans are:

Secured Loans

Collateral is used to act as a security feature in a secured loan in case the borrower cannot repay the lender. The borrower loses their collateral if they cannot fulfill their obligations. As such, secured loans have somewhat of a riskier structure for small business owners compared to unsecured loans. 

What is collateral for a secured business loan? It can be the item you’re taking out the loan to purchase. For a restaurant loan, this could be kitchen equipment. Collateral is also usually designated based on its value to the borrower, to ensure they do everything possible to repay their loan. Traditional financial institutions like banks will often seize collateral in the event of the borrower defaulting. In that case, the bank removes the collateral’s value from your debt while hiring legal authorities to gain the rest of what you owe them.

While secured business loans can be riskier for borrowers, they are often more easily available, since lenders face less risk. Restaurant loans and construction business loans fall into this category. 

RESTAURANT LOANS

In addition to having collateral, small business owners are often expected to provide a large down payment, have restaurant experience and a credit score that’s close to perfect. Having a strong business plan and a clear vision can also improve your chances of securing a loan. 

CONSTRUCTION LOANS

A construction loan requires you to have a good credit score, low debt-to-income ratio, and a way to prove sufficient income to repay the loan. Applying for this type of loan requires a down payment. Having a detailed plan, particularly one created by the construction company you’re working with, will increase the lender’s confidence in your ability to repay the loan.

Unsecured Business Loans 

When you don’t have collateral or want a less risky loan, unsecured business loans are an option to consider. The lender provides the loan based on the borrower’s creditworthiness. 

Banks and credit unions offer unsecured small business loans that often come in the form of business credit cards and lines of credit where the borrower is pre-approved. However, they also offer education loans, personal loans, and property improvement loans for which it’s difficult to qualify. You need a solid credit history and a reliable source of income. Getting unsecured loans when you have bad credit is challenging, but still possible.

However, traditional lenders often provide unsecured loans with higher interest rates because they have more risk on the lender’s side. Other factors to expect are short terms and smaller amounts of money. What it comes down to is that your word is the collateral. 

How to Improve Your Chances of Getting a Loan

Knowing the distinction between secured and unsecured loans, you can evaluate your business to see what you need to be in the best position for getting a loan from many lenders. Maintaining an above average credit score will significantly improve your chances.

You can use these tricks to build up or improve your business credit score: 

• Start Using a Credit Card ASAP: The sooner you establish credit, the longer the history will be once you finally apply for a loan. While not all lenders will review your personal credit score, you will need a good score if you apply at a bank.
• Pay Early: Some lenders, such as banks, are strict when it comes to late payments. However, they sometimes want you to pay early instead of by the due date. It’s important to not bite the hand that feeds you, so to speak, so get your affairs in order long before the due date and pay early.
• Keep a Good Record: Newbie business owners aren’t aware that lenders have access to information they thought was private. This includes your business credit report that’s filed under your DBA. Information, such as liens, judgements, and bankruptcies are publicly visible and will indicate to lenders how good or bad your credit rating is.   

Remember that if you don’t qualify for an unsecured or secured loan with one lender—especially the bank—there are many others out there that are willing to help you. Forget traditional financial institutions that force such a high barrier to entry, just to get access to business financing. Save time and reduce complications by dealing with Santander instead!

What Does Santander Offer?

Santander offers unsecured small business loans. It’s important to note that while collateral is not required, all Santander loans have a general security interest on the business, which is registered under the Personal Property and Security Act, and are backed by a personal guarantee.

Our Santander experts in small business lending will review your online application and get in touch to discuss your situation and goals. Small businesses must have $100,000 in annual revenue, have been in operation for at least 1 year, and have a personal credit score of 610.

Contact us today, or Log in!

The post Is a Small Business Loan Secured or Unsecured? appeared first on Santander.

In this article we will discuss the process of getting this kind of financing, how to improve your odds of success, what you’ll need in order to qualify, and how to choose the best financial institution or online lenders for you. By putting together a business loan application that makes sense and is well-organized, you can create the conditions for success that you need as a business owner in United State.

What are Business Loans Typically Used For?

Some of the most common uses of business loans include purchasing equipment, expanding your inventory or hiring new employees. But you can also use business credit for other things like launching a new project, making repairs to your business, marketing it online or financing general operations. 

Will I Need Collateral to Get a Business Loan?

Typically, you will need to have some form of collateral for this type of loan. 

That can be business assets like equipment essential to the operation of your company – think heavy machinery or vehicles. Alternatively, it could also include personal or business assets outside of what actually goes on in your business’ day to day.  For example, if you have a side business that is not related to your main work but has its own assets – such as property or investments, they could be included.

In many cases, the lender will consider what they are able to get in return from those assets in order to repay the loan in a worst-case scenario before offering financing. In other words, most lenders will ask for more collateral than just what you need to get the business loan.

All of that being said, it is still possible to get a business loan without collateral – but only in certain situations and with strong financials behind your application.

Lenders will be looking at your personal assets as well as those belonging directly to the company itself. When it comes down to it, your application for business financing is all about ensuring that your business credit profile is attractive enough for a lender to feel secure that you’ll repay what is owed eventually – either through your own assets or those of the company. 

As long as you have shown good faith in making sure this happens then there should be no problem, especially for small business loans of less than $150,000 CAD.

What Will I Need to Get Approved for Small Business Loans?

The first step in getting approved for a small business loan is to have the right documentation. You may need your personal financial documents, which can include things like your tax return and profit-loss statements from previous years. Additionally, you should be prepared to offer up information about your credit card transactions, your business credit score, and be able to provide information about how much money you are looking to borrow, as well as what you plan on doing with it.

Lenders will want to know that a small business owner is using the money for a good purpose, and that there is an end in sight. If your business has been around for more than two years, then lenders can use your prior tax returns as proof of this.

As you go through the process of applying for a loan, small business owners should make sure to ask questions. Knowing what you are getting into is a great way to avoid future problems and issues with your financing terms. It’s always a good idea to consult with an expert.

How Can I Improve My Chances of Being Approved?

Before you even begin looking for a traditional business loan, it is important that you start with some of the basics: how much money do you want to borrow, and why? Having this information will jumpstart the application process, and is really your first step.

Lenders will also want to know that you plan on continuing with business once the loan is repaid, so it is often required to have some sort of exit strategy in place. If your previous returns are not too impressive, then lenders might be more reluctant to give out money. Then again these documents only tell part of the story.

That’s why alternative lenders sometimes act as a good alternative to the big banks. Companies like Santander have been helping individuals and businesses get the loans they need for years, and they’re often the perfect fit for those that want to avoid the slow and difficult process required to get a traditional bank loan from larger financial institutions.

What Interest Rates Will I Pay on a Small Business Loan?

Interest rates for small business loans vary depending on the lender, but they typically fall between 12% and 15%. As a rule of thumb, you should expect to pay more if your personal credit score is not as high, or if your personal credit history is spotty.

Of course, the higher the interest rate on the business loan, the more money that you will have to pay back in addition to what was borrowed. Competition among lenders can often result in lower interest rates being offered when looking for small business loans in United State .

Tell Me More About Collateral Required for Business Loans?

In most cases, lenders will want to have collateral from you in order to protect their investment. In other words, the business loan is backed by tangible assets that can be sold if necessary – this includes real estate and vehicles as well.

In other cases, lenders may be willing to accept personal assets as collateral. This can include things like your primary residence or a car that is not rented out by the company – in fact if you have one of these then chances are quite good that they won’t ask for any additional security!

The bottom line here is this: always have an exit strategy. Talk to an expert loan advisor like those at Santander to learn more about the best ways to get about securing the money you need. 

Is Having a Business Plan Important?

A business plan is an essential part of the application process. Lenders will want to know what you intend on using the money for and how it will benefit your company, and a good business plan should address this directly (and realistically). This document can also be used when looking for other sources of financing in United State, so making sure that it’s professional is very important.

If you are not sure where to begin, then it might be best to contact a financial company like Santander who can help connect you with the information you need to get all your plans in order, as well as the business loan that works best for your situation.

Should I Choose a Bank or an Online Lender for My Small Business Loan?

The answer to this question will depend on your specific needs. Larger banks can offer a wider variety of services and products, but they usually take longer to process applications as well.

Instead, you might want to consider working with an online lender that focuses exclusively on small business loans in United State . These companies are highly specialized in what they do, which means that time to get approved can be much faster.

These lenders also offer a variety of repayment options, and often specialize in working with small businesses – this is why they are usually the best choice when it comes to getting business loans in United State.

Contact us at Santander to learn more!

The post How to Get Approved for a Small Business Loan in United State appeared first on Santander.

There are more ways to get a small business loan in United State than ever before. This is because new lenders and solutions have emerged to meet the needs of small businesses. Unfortunately, many business owners don’t know all their options and find it difficult to understand which solution is right for them. As the Chairman of the United State Lenders Association and President of Santander, I’m on a mission to educate the business community and help fix this problem.

Here is an overview of the most common business loan options available today. You can jump to any section by clicking on the topics listed in the table of contents. I hope this information helps you make the best financing decision for your business and invite you to share the guide with others who could benefit from it.

Sincerely,

(view my bio here)

If you begin searching online for the different types of small business loans you may start to think there are infinite options. Don’t get distracted by all the creative names lenders have come up with to describe their loans such as “Flexible Payment Solution”. There are modern twists on traditional products, but almost every solution fits into one of these categories:

Installment Loan ⇩

Line of Credit ⇩

Merchant Cash Advance ⇩

Invoice Factoring ⇩

Equipment Lease ⇩

Commercial Mortgage ⇩

Business Credit Card ⇩

Personal Loan and Credit Cards ⇩

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Installment Loan

What it is

An installment loan, also known as term loan, is a loan for a fixed amount that is repaid in a series of installments over a fixed period of time. You are likely familiar with long term loans such as those offered by banks; however, alternative lenders have introduced options with shorter terms which are used as a working capital loan.

Amounts

Term loans can range from $5,000 to millions. It really depends on what you need the capital for and how much you qualify for.

Duration

Terms vary according to the lender and your needs. Banks typically provide installment loans ranging from 2 to 7 years for working capital and up to 25 years for real estate. On the other hand, alternative lenders offer short term business loans that are designed for working capital needs and typically range from 3 months to 2 years.

Payments

In most cases, payments for installment loans are a fixed amount which includes principal and interest. These are normally paid bi-weekly or monthly, which makes it easy for business owners to manage their cash flow. The only exception is when you have a floating interest rate, which is only used occasionally by banks and would cause your payments to fluctuate.

Application process

Traditional lenders likely will require a variety of documents to be provided in person and online, while alternative lenders will request basic information about you, your business, and bank statements for the last 3 to 12 months.

Approval time

Traditional lenders can take upwards of a month to approve a term loan, while alternative lenders take between 1 to 7 days.

Security

Banks will require you to provide collateral, a personal guarantee, and sign a general security agreement. Most alternative lenders do not require specific collateral, especially if the business loan is unsecured.

Best for

Installment loans are ideal for established businesses who can demonstrate that they have positive cash flow. Longer term loans are often used for things like real estate while shorter terms are used for working capital or to provide a bridge to other financing.

Alternative lenders mostly provide installment loans to those who can’t get enough capital from their bank.

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Line of Credit

What it is

A line of credit gives small business owners access to a pool of funds whenever needed. When the funds have been used, interest is charged on the outstanding balance. After the balance is repaid, the line of credit reverts to its original balance.

Amounts

The credit limit available is based on your revenue, other debt obligations, your credit score, and anything else that could effect your ability to repay the debt. Also, your ability to provide collateral to secure the line of credit may allow you to be approved for more funding.

Duration

The “draw period” is the set time frame that the funds is allowed to be taken from the account. This draw period can last several years, depending on the agreement established.

Payments

The interest rate on a line of credit is usually variable, meaning it may fluctuate over time. The interest rates the borrower pays on a line of credit is often affected by their credit score.

Application process

A line of credit application can be done online and in-person. The process requires you to submit the following documentation:

• Government issued pieces of identification
• Size of your business’ income and assets
• Historical financial statements
• Profit and loss history
• Proof you’ve been in operation for at least 6 to 12 months

Approval time

Lines of credit can typically be approved in 3 to 14 days.

Security

A line of credit can be either secured or unsecured. A secured line of credit requires a business to use an asset to secure the line. In this situation, the business is not able to repay the line of credit debt, then the lender is able to assume ownership of that collateral. An unsecured line of credit, doesn’t have any collateral attached to it, so a lender may ask for a personal guarantee and a stronger credit profile to approve the agreement.

Best for

We find that a line of credit is most useful for businesses with fluctuating cash flow and seasonal revenue.

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Merchant Cash Advance

What it is

A merchant cash advance (MCA) is technically not a business loan. It’s a lump-sum advance given to a business in exchange for a percentage of their future credit and/or debit card sales.

Amounts

The maximum amount available to you is normally capped at 10% of your annual sales.

Duration

Merchant cash advances do not have a fixed term. You will continue to make payments until the balance and fees are paid off. In most cases, the term ends up being between 6 and 18 months.

Payments

Payments are calculated as a percentage of your daily sales volume and are either taken directly from your card processor or an account controlled by the merchant advance provider. Some business owners like the ebbs and flows of this setup; however, others find it difficult to manage the constant payments.

Application process

Most MCA applications are done online and require your business to provide the following:

• Annual revenue / average monthly revenue of credit or debit card sales
• Business tax returns
• Bank account statements
• Several months of credit card or payments processing data

Approval time

Historically, merchant cash advances are one of the fastest forms of funding available. Some lenders can provide business owners with an approval and funding in 72 hours or less.

Security

Similar to a term loan, a merchant advance provider will require a personal guarantee and general security agreement.

Best for

A merchant cash advance is suited for businesses that have strong credit/debit card sales and aren’t able to qualify for other types of funding. This is because a merchant advance can be very expensive and come with risks any business owner should know before committing to one. Unfortunately, each week we hear stories of business owners being convinced to get a merchant cash advance without fully understanding what they were getting into.

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Invoice Factoring

What it is

Invoice factoring is when a business sells their accounts payable or invoices to a lender for a discount. Once a business assigns their account, they then receive what is called an advance rate. This rate is usually 80% of the value of the factored invoice. The lender then collects the payment from the invoiced client, and forwards it to the business after deducting a service fee.

Amounts

How much you can borrow depends on the amount of the invoice. The creditworthiness of your customer is also important. For example, you will likely be able to borrow a higher % of an invoice if it is from a big company like Costco.

Duration

You can usually borrow against invoices for a period between 90-120 days.

Payments

Once the lender collects the payment from your client, they will take a fee and forward you the remaining funds. This fee is usually 0.5% to 5% of the invoice amount per month.

Application process

An invoice factoring application is typically done online. Examples of the information you will likely have to provide include:

• Accounts receivables / payable aging report
• Details of outstanding invoices to be funded
• Commercial credit of your clients
• Invoices that are payable within 90 days and free of liens

Approval time

Getting approved for invoice factoring can happen in as fast as 24 hours.

Security

The purchased invoice often represents all the collateral you need to provide.

Best for

We recommend using invoice factoring to only fix temporary cash flow problems. We believe that factoring shouldn’t be viewed as a long-term solution due to its high cost. Factoring is often used by companies that need to pay expenses before they are able to collect on their invoices. These companies have increasing accounts receivable balances that caused by either a boost in revenue or customers with extended payment terms.

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Equipment Lease

What it is

An equipment lease is an extended rental agreement under which the owner of the equipment allows you to use the equipment in exchange for periodic lease payments. You will find that this option is similar to the approach taken when you lease a car.

Amounts

Leases can vary from a few thousand dollars to millions, depending on the value of the equipment. For example, one company might lease furniture while another leases aircraft. It is important to know that many leases require a down payment.

Duration

Terms for equipment leases are based on the useful life of the equipment so it depends on the type of equipment you are getting. At the end of the term, you normally will have the option to buy the equipment at its fair market value, extend the lease, or give the equipment back.

Payments

Lease payments are typically paid in fixed monthly installments and are based on a variety of factors including the type of lease, residual value of the equipment, term, and your business history. You may be able to deduct your monthly rental payment or the cost of the equipment to get some tax benefits. We recommend that you speak to a CPA to confirm this before making a decision.

Application process

Equipment loans can be done in person through a bank which may require a business plan. Meanwhile, private lenders allow the application to be quickly done online. Both types of lenders will ask for the following information:

• References from banks and trades
• Personal and/or credit bureau ratings
• Equipment information and location

Approval time

You can generally get approved for a lease within a few days.

Security

An equipment lease typically uses the equipment as collateral and doesn’t require a general lien on the business.

Best for

An equipment lease is best for companies who deal with rapidly changing technology or need equipment for a short amount of time to complete a project. This option is very popular in industries such as agriculture, medical, and oil and gas. We suggest weighing the pros and cons of using equipment leasing before committing to an equipment lease.

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Commercial Mortgage

What it is

A commercial mortgage is a loan secured by a commercial real estate such as a shopping centre or office building.

Amounts

A lender uses a loan-to-value (LTV) ratio to assess the loan amount relative to the value of the property. Banks generally finance between 65% to 80% of the value of commercial real estate, which will most often lead to mortgage between $250,000 and $25,000,000.

Duration

The term of a commercial mortgage typically ranges from 5 to 20 years.

Payments

Lenders expect a down payment of 20-35% of the value of the property. A larger payment known as a balloon payment is made at the end of the loan to pay off the remaining principal. Commercial mortgages may also have prepayment restrictions. This is a penalty designed to deter you from paying the debt before a loan’s maturity date.

Application process

Lenders will evaluate the following when considering offering you a mortgage:

• Debt service coverage ratio – this is the ratio of cash available to the required loan payments
• Your credit history
• Your business’s profitability and financial projections

Approval time

An application for a commercial mortgage takes a few weeks to complete.

Security

This type of business loan uses the subject commercial property as collateral.

Best for

Commercial mortgages are ideal for those looking to purchase real estate they currently lease or build a new location.

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Business Credit Card

What it is

A business credit card operates like a personal credit card but allows you to manage your business expenses independently.

Amounts

The average credit limit for businesses can be up to $50,000.

Duration

The expiry date for a business credit card is determined by the lender, however this can be renewed.

Payments

Like any credit card, payments are due periodically with a pre-determined interest rate applied to the outstanding balance.

Application process

Applying for a business credit card often requires you to submit your personal credit history to lenders. Most lenders focus on your credit score to determine what credit limit they’ll approve for your business.

Approval time

An application for a business credit card can be approved within 24 hours.

Security

Most business credit cards do not require collateral, but some require a security deposit to activate the card.

Best for

A business credit card is best for businesses that need to record their daily purchases more accurately and want to build business credit. We advise not using a card for larger purchases because the interest rates can be very high.

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Personal Loan or Credit Card

Some small business owners who aren’t aware of their funding options will use a personal loan or personal credit card to fund their business. While this seems like an easy way to get the money you need, it can risk your personal credit, prevent you from building business credit, and complicate your accounting. Also, it can get expensive. To learn more, read Why You Need a Business Loan (Not a Personal Loan) for Your Business.

Where to Get a Business Loan

There are 5 main sources small business owners go to get loans in United State:

Traditional lenders ⇩

Alternative lenders ⇩

The government ⇩

Marketplaces ⇩

Friends and family ⇩

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Traditional Lenders

Many United States think of the Big 5 Banks when asked what the traditional approach is to getting a business loan. These large financial institutions dominate the banking industry, but there are other traditional lenders including credit unions and smaller banks that offer financing.

What they offer

We see United State banks and credit unions offering all types of loans except for invoice factoring and merchant cash advances. The most common are mortgages, credit lines, and installment loans.

Who they serve

Although traditional lenders have programs and products to help those starting a business, they tend to focus on serving established businesses that can provide collateral. These lenders can be conservative and decline businesses for a variety of reasons. This is understandable since they make very little money from smaller business loans, find it difficult to scale up their lending efforts, and want to avoid the risk of getting bad publicity for charging higher rates (even if the rates are appropriate for the risk they’re taking).

You may see some traditional lenders partnering with alternative lenders to broaden the segment of the business community they serve. This is an exciting trend unfolding in United State that will only improve your access to capital.

Pros and Cons

Pros

• Lowest cost of capital
• Products for those starting a business
• Other services in addition to financing

Cons

• Lowest approval rate
• Lengthy and difficult application process
• Most likely to require collateral

Our advice

While traditional lenders can be very conservative, we suggest building a relationship with a few of them. This will help you eventually access capital at the lowest cost possible, even though the process of getting a loan may be more involved.

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Alternative Lenders

The phrase “alternative lender” is an overarching description for any small business lender that isn’t associated with a traditional bank or credit union. These lenders are often considered online lenders or “fintech” companies because they deliver financial products and experiences by leveraging technology. In a relatively short amount of time, alternative lenders have become the fastest growing group of lenders in United State. In fact, some estimate that over $1 billion in alternative lending solutions has already been delivered to small businesses.

What they offer

Alternative lenders in United State currently offer all types of business loans, except for long term installment loans and commercial mortgages.

Who they serve

Alternative lenders serve business owners who can’t get enough capital from their bank, need funding quickly to capitalize on an opportunity, or are simply looking for an easier process. They do not fund those looking to start a business.

Pros and Cons

Pros

• Higher approval rates than traditional lenders
• More short term options
• Faster and simpler process

Cons

• Payments can be more frequent depending on the lender and loan type
• Rates can vary from just above bank rates to very high
• Not all alternative lenders are equally credible

Our advice

See what an alternative lender can offer you and make sure they are trustworthy. Also, find a lender that only runs a soft credit check so you can get a quote without having your credit affected.

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Government

 

The Government often allocates a portion of its budget to provide loans and grants to help small businesses. Both Federal and Provincial governments offers loans and other forms of financing to help small businesses. These publicly funded loans have stricter requirements.

What they offer

The Government provides different options of financing, such as loans and

Government loans can be unsecured and have low or no interest rates. A loan guarantee is when the Government agrees to cover 85% of the total loan amount if the business owner defaults.

Who they serve

Government loan programs vary based on region and your industry. Check the Federal or your Province’s website to see the options available to you.

Pros and Cons

Pros

• Some programs charge little or no interest
• Willing to help cover defaulted loans

Cons

• Long application process
• Very selective funding process

Our advice

If you’re a type of business that the Government is aiming to support, then getting a loan with them would be advantageous. However, if your business doesn’t meet their strict requirements, it may be a frustrating trying to get a government loan.The Government has acknowledged that it cannot help all United State businesses so it has created programs to work with select private lenders that can provide funding.

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Marketplaces

Marketplace lending, also known as peer to peer lending (“P2P”), involves connecting business owners with individuals online who are willing to lend money. In this approach, a marketplace assesses the risk of each business and posts their information and funding goal online so individuals can pick the businesses they are interested in. If enough money is committed to a business to meet the goal, the loan is provided and the marketplace serves as an intermediary moving forward (for payments, record keeping, etc). This is a relatively new concept in United State and shouldn’t be confused with crowdfunding, which involves raising money in exchange for rewards or equity.

What they offer

Marketplaces do not offer loans. They provide the service of connecting businesses and individuals and make money by charging fees to both parties. In United State, you can get term loans through a marketplace.

Who they serve

While crowdfunding those with a business idea or new product, P2P lending is for established businesses who can demonstrate to investors that they are capable of consistently making loan payments.

Pros and Cons

Pros

• You may be able to connect with individuals willing to offer lower rates than some other lenders
• Some marketplaces facilitate loans that won’t require you to put up collateral

Cons

• All your information will be posted online (including your financials)
• There is no guarantee of funding
• The process can be even longer and more difficult than a bank loan

Our advice

Marketplaces can be a good source for business loans, but you should make sure a P2P loan is right for your business before going through the application process. If you want to explore marketplace lending, make sure you find a credible marketplace in United State with enough individuals looking to invest.

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Friends, Family, and Fools

Small business owners not only seek emotional support from their loved ones, they sometimes ask for financial support. Borrowing from family and friends can be fast and cheap, but has the potential to strain your relationships. For example, if you were unable to repay a friend’s loan it could lead to a lot of guilt and anxiety. Additionally, it could make them feel entitled to influence your business decisions, even if they are not qualified to do so. We recommend considering all the pros and cons of borrowing from friends and family before making a decision.

Business Loan Interest Rates and Fees

The interest rate of a business loan is the percentage the lender is charging to borrow their money. Rates are often quoted as an annual percentage of the loan amount, but not all lenders and products use the same approach to calculating and presenting interest rates. Also, you may have to factor in fees to understand the total cost of your loan. Here is an overview of what you can expect when reviewing your quotes.

Business loan interest rates ⇩

Business loan fees you should know about ⇩

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Business Loan Interest Rates

Interest rates for business loans can range from low single digits to over 50% for some options. The rate you receive depends on the lender, loan type, and your risk profile.

As a rule of thumb, you can expect to see the following:

Lowest rates – Bank loans

Biggest range of interest rates – Installment loans

Highest rates – Merchant Cash Advance

You will likely see rates communicated in a few different ways (APR, Factor Rate, AIR, etc) which may seem confusing. The important thing is that you get multiple quotes and find out the true cost of each option before making a decision.

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Business Loan Fees You Should Know About

When you get a business loan it can be difficult to understand the fees you’ll be charged. Here are some of the most common fees you may come across.

Origination Fee – This is for processing your loan application and can be charged as a percentage of the loan amount (likely between 1-6%) or a flat rate. Some lenders will allow you to add the origination fee to the loan amount.

Service Fee – This is for the ongoing management and administration of your business loan. Most service fees are ongoing (likely every month) and charged as a percentage of your payment amount. However, some lenders will charge a one-time service fee when you get your loan.

Prepayment Penalty – This is for paying off your loan balance early. Lenders who charge this type of fee typically make you pay the remaining interest owed on the loan. Some will even make you pay most of the remaining interest and disguise the fee as a “discount” since you won’t have to pay all the interest.

NSF Fee – This stands for “Non-sufficient funds” and occurs if the lender tries to draw your payment, but your bank account doesn’t have enough money.

When to Get a Business Loan

Sometimes it is a great idea to use a business loan to take the next step in your business. Other times it may prevent your business from moving forward. Below we provide an overview of the main indicators for both scenarios.

When to Get a Business Loan ⇩

When Not to Get a Business Loan ⇩

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When to Get a Business Loan

To Capitalize on an Opportunity

A business opportunity could come in various forms. We see a lot of small business owners using a loan to:

• Renovate their space
• Open a new location
• Invest in training and develop new staff
• Launch a marketing campaign
• Purchase inventory for busy seasons
• Buy new equipment to improve productivity
• Hire staff 
  

Regardless of the opportunity, make sure the potential return outweighs the costs.

To Increase Working Capital 

Working capital is the cash used to manage your daily operations. Sometimes it’s necessary for businesses to take out a working capital loan to cover their daily expenses until they are cash flow positive again. For example, it is common for seasonal businesses to get a loan to stock up on inventory for busier seasons.

To Build Business Credit 

As a business owner you always want to be building your business credit. Without a strong credit score, you may find it difficult or increasingly expensive to get the funding you need. We recommend that you build your business credit by taking out a smaller loan while making your payments on time. This tactic proves that you are financially responsible which will strengthen your business credit score.

To Refinance Other Debt

Some forms of business financing are more expensive than others. For example, Merchant Cash Advances are known to be more costly than installment loans. Many small business owners use a business loan to refinance one or many other loans. If you’ve found yourself in this situation, you should consider consolidating your debt. There are many solutions that can help you consolidate your debt at a lower rate, which will help save your time and money.

To Handle A Surprise 

Every entrepreneur has run into a surprise they weren’t expecting. From broken equipment to floods, a business loan can help you bounce back.

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When Not to Get a Business Loan

To Pursue A High-Risk Opportunity 

Not every business idea is a home run. Before you take on debt, you should consider if the investment is the best move for your company. For example, you should re-think investing $20,000 into a marketing video that you hope will go viral. These types of investments may have potential, but the risk/return trade-off isn’t worth it.

When You’re Struggling to Pay Your Other Obligations

When you apply for a loan, the lender will do their best to determine the money going in and out of your business. This is to ensure that you’ll be able to repay both your existing obligations and your new loan. If you can’t meet your current obligations, taking on more debt may just put you in a deeper hole.

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Expert Tip

“It’s important to know if the benefits of the opportunity will outweigh your costs. You can lose out on opportunities to grow your business if you don’t secure the funding you need to get there.”   –  Eoghan Bergin, Small Business Funding Specialist

How to Get The Best Loan for Your Business

You can select the right lender and solution for your business if you follow these simple steps:

Step 1 – Determine your needs

It can be tempting to try to get as much funding as possible, but you should only look to borrow as much as you need.

Step 2 – Understand your borrowing ability

There may be a difference between what you need and what you can afford. Therefore, you should always review the financial health of your business before considering getting a loan.

Step 3 – Find credible lenders

Anyone can make a website today and claim to be a lender. Take your time and do some research to make sure you only deal with credible lenders.

Step 4 – Get multiple quotes

Although some lenders may pressure you to act fast, it is important you get a few quotes to understand your options before making a decision.

Step 5 – Pick the best option for your business

For each option you have, get answers to the following questions before making a decision.

Application – What is required to apply? Is the application online?

Time to funding – How quickly can you get the funds?

Type of loan – What type of loan are you being offered?

Term length – What are your term options?

Amortization – What is the amortization schedule?

Cost (rates and fees) – All else being equal (including term), what is the total cost of the loan?

Prepayment penalties – Is there a penalty for paying your loan off early?

Business credit – Will the loan help you build business credit?

Payment method – How much are the payments, what is their frequency, and how will they be paid?

Security – What type of security does the loan require?

Once you have this information you can accurately compare your options and determine the best business loan for your needs.

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The Bottom Line

With a good understanding of your goals, needs, and options, you should be able to get the right loan for your business. Just remember that it often takes longer than you think to get the funding you need. That is why we encourage you to find out what your options are now so you can be ready to take advantage of them if/when you need funding!

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Glossary

Alternative Lenders – any small business lender that isn’t associated with a traditional bank such as a bank or credit union.

Annual Percentage Rate – a rate that reflects the total cost of borrowing a loan. This includes the interest rate, origination fees, and any additional financing charges.

Asset – a resource with economic value that is expected to provide future benefit for the owner.

Balloon Payment – a large payment due at the end of a balloon loan, such as a mortgage or commercial loan.

Capital – wealth in the form of money or assets that can be used by an individual or organization for economic benefit.

Cash Flow – the net amount of cash and cash-equivalents being moved into and out of a business.

Collateral – an asset used by borrower to secure a loan. If the loan is defaulted the lender is able to claim the asset.

Credit – the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.

Credit Score – a number that determines an individual’s creditworthiness. This number is based on the individual’s credit history.

Crowdfunding – a site that allows crowds of people donate a specific amount of money for a cause or project.

Debt – an amount of money borrowed by one party from another. The borrower is expected to pay back the amount borrowed at a later date, usually with interest.

Down Payment – a payment made at the initial purchase an expensive good or service. This payment represents a percentage of the full-cost and is usually non-refundable.

Equipment Lease – obtaining use of machinery or equipment by renting it. The equipment is often owned by a leasing company or financial institution.

Equity – A stock or any other security representing the ownership stake in a company.

Factor Rate – an alternative method of presenting the amount of interest charged on a loan or lease. This rate is usually represented in decimals instead of a percentage.

Fixed Rate – a rate that remains constant throughout the duration of the loan.

Personal Guarantee – an individual’s legal promise to be personally responsible if a business becomes unable to repay a debt.

Hard Credit Check – a type of credit information request that includes a borrower’s full credit report and has a negative effect on a borrower’s credit score.

Interest – is the amount charged by lender to a borrower for using their assets. This amount is usually expressed as a percentage of the principal.

Invoice Factoring – a method of financing where a business sells its invoices to a factor company at a discount.

Leverage – the amount of debt a company uses to finance assets.

Lien – a lender’s claim against a collateral asset if the borrower is unable to repay their debt.

Line of Credit – a method of financing that gives small business owners access to a pool of funds whenever needed. When the funds have been used, interest is charged on the outstanding balance. After the balance is repaid, the line of credit reverts to its original balance.

Loan-To-Value (LTV) Ratio – the ratio of outstanding debt to the value of the collateral for the loan. Lenders will determine a maximum ratio they are willing to accept based on the value of the collateral.

Marketplace – an online platform that connects borrowers and lenders.

Merchant Cash Advance – a lump-sum advance given to a business in exchange for a percentage of their future credit and/or debit card sales.

Commercial Mortgage – a loan secured by a commercial real estate such as a shopping centre or office building.

Peer-To-Peer (P2P) Lending – a method of debt financing that uses an online platform that connects borrowers and lenders.

Principal – the original sum of money borrowed in a loan or in an investment.

Residual Value – the value of an asset at the end of its lease or at the end of its useful life.

Secured Loan – a loan where the borrower uses their asset as collateral for the loan.

Soft Credit Check – a credit report check that does not affect an individual’s credit score. This check can happen when an individual checks their own credit report or a potential employer credit report.

Term Loan – a loan for a fixed amount that is repaid in a series of instalments over a fixed period of time.

Traditional Lenders – a financial institution that provides a range of services to consumers. These include the United State Big 5 Banks as well as credit unions and smaller banks.

Unsecured Loan – loans that are approved without the need for collateral. In this case the borrower is approved for the loan based on their credit history and income.

Floating Interest Rate – an interest rate fluctuates over time depending on the market.

Working Capital Loan – a loan that is taken to finance the daily operations of a company, such as accounts payable and wages.

The post Small Business Loans in United State appeared first on Santander.

However, not all existing businesses will exist forever, and at some point or other, many will be sold to new owners. This represents an opportunity for those thinking about a business acquisition. If you’re interested in buying a small business in order to take it to the next level (and deliver yourself a handsome profit on your investment in the process), then you may need a business acquisition loan to get started.

The challenge is that not every bank or financial institution may be interested in lending you the money. The good news is that there are other options besides traditional bank loans for business financing, including working together with Santander to turn you into a small business owner in a way that makes sense for you. 

Why You Should Think About Buying a Small Business in United State

Business acquisition loans can help you buy a company in United State, which can be a fast and easy method to expand your existing client base, increase your overall capacity for profit, or gain access to new markets. You can even buy a business belonging to a competitor or supplier.

Buying a pre-existing business has other benefits too. Not only will business acquisitions allow you to inherit relatively experienced staff, but the business’s supplier and distribution networks will often be mature as well. 

Small business financing could be the right move for your future, and one of the benefits you can expect to enjoy are the advantages that aren’t always available when making larger deals.

For example:

• Small businesses have a lower failure rate than large corporations. 
• Small companies also enjoy faster growth rates than larger firms, at least initially.
• The startup investment required to buy an existing business is also typically lower than the costs involved in starting your own from scratch, so there’s less risk of losing money on the deal.
• Purchasing a small business provides an opportunity to become more competitive against larger rivals in your industry.

In addition, If you are interested in turning around a struggling company, buying a small business often presents the best opportunity to do so. But what financial institutions can you trust with your business purchase? Can you even get a traditional business loan, or will you need to work with alternative lenders instead?

The truth is, both can be good options, and the choice will largely depend on your particular circumstances. Sometimes speaking to a financial expert can help you narrow down your choices in order to make the right move. 

What  Criteria Do Lenders Evaluate When You Apply for a Loan to Buy an Existing Business 

Whether you’re applying for a small business loan, or applying for a loan to buy a small business, a lender will always take certain factors into account to decide if you represent an acceptable level of risk. 

Lenders who understand these criteria best (like those at Santander, for example) can help you get the loans that are right for your situation. Some of the factors that will come into play include the following.

Creditworthiness

As with any personal or business loans, one of the first things your potential lenders will evaluate is your credit score. The better your score, the lower the interest rates you’re likely to get on your loan. 

Business Plan

Another of the major factors lenders will consider is what you plan to do with their money. If they can see that there’s a realistic chance for turning a profit by expanding or growing your business, then you are more likely to get a loan.

Company Turnover

In addition to understanding your business plan, lenders will also want to know how much money the company you’re looking at already makes in sales. This helps give them an idea about whether or not expanding the business in question would be a good investment. Lenders will also look at your personal assets and liabilities just as they would for any other small business loans to determine how risky it might be to lend you money.

Financial Projections

In order for lenders to have confidence that your loan will help the business grow, they need a clear idea of what kind of return on their investment to expect. This makes it important to present accurate and detailed financial projections and financial statements right from the start of the loan application process.

Collateral

When buying an existing business, lenders also need to know you have something of value to put up as collateral in case you are unable to make payments on your loan. This means it’s important, if at all possible, that potential lenders see an asset they can take back from you if necessary.

Supporting Documentation

Finally, lenders will also want to see documentation like previous quarterly and annual reports, your corporate history through at least the past five years, various business licenses, detailed analyses of the market for your product or service that show demand is high enough to support increased activity, tax returns, credit evaluations from third-party organizations, and more.

The Different Available Methods To Finance the Purchase of an Existing Business

Because an established company has a track record of accomplishment, it is often easier to attract capital for this sort of investment than it is for a new business. And you don’t always need to use a lender to get the money you need. 

Personal Financing

Using personal finances to purchase a small business is expensive, but you may be able to get lower interest rates than on loans offered by banks or other financial institutions, resulting in less overall cost for the money.

Existing Business Assets

If you have some assets you can turn into cash quickly, consider selling them to help get the money you need to purchase another business. This might include things like accounts receivable that are owed to you by customers or suppliers, inventory, equipment, etc.

Lines of Credit

Many lenders offer lines of credit that could be used to cover expenses related to the sale and transfer of assets from one business owner to another. This includes things like paying off outstanding loans, fees related to changing business structure, moving costs for employees and goods, adjusting lease agreements if necessary, and more.

Vendor Lines of Credit

If you need money quickly to purchase a small business or cover costs related to the sale of the company’s assets, getting a line of credit from vendors themselves can be another option for expediting the process.

Loan Guarantee

For some small business owners, a loan guarantee can help if your credit score isn’t as high as it needs to be in order to get a traditional loan or line of credit. This can give you access to financing that might not otherwise be available and is worth exploring as an option.

Business Acquisition Loans

Sometimes it’s necessary to refinance or cash out an existing loan in order to have enough money available for your down payment on the new business you want to buy. This can be a viable option if you have already taken out another loan and don’t want to owe more than what it’s worth.

Non Traditional Lenders

Alternative lenders like peer-to-peer lenders, small business lenders, and others are other options worth considering because they can offer great rates on loans to finance the purchase of a business.

Trust Santander to Get the Information You Need

Santander is a United State-owned lending company that has worked to offer United States an alternative way of borrowing money.

They want all United States to have the opportunity to be productive economic actors, which is why they work with those who might not otherwise qualify for bank loans, or who need a more flexible solution. We also believe in offering you competitive rates and great terms on our loans.

One of the special advantages we offer is that we work to give you a loan for up to $150,000 within minutes. That means if you need money quickly and easily in order to finance the purchase of a small business, then we may be able to help you get it fast and at a low rate.

Learn more about our programs, small business loans, construction loans and more by visiting our website.

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