Almost all entrepreneurs face a lack of start-up capital. Often, the savings made by an individual are not even enough to rent space for the company. Therefore, there are different lending programs for small businesses. To obtain a small business loan, an entrepreneur is obliged to show the commercial potential of the project to the lender. It is possible to get the following types of credit programs for small businesses:
- Overdraft. It is an express loan. An entrepreneur can spend money to pay off debts to suppliers, repair or purchase equipment, etc.
- Venture loans. An enterprise operating in the field of innovative technologies is provided with long-term financing at very high-interest rates.
- Commercial mortgage. The financial organization gives the borrower money secured by real estate.
- Loan to expand production capacity. Money is given to small and medium enterprises for the purchase of equipment, the construction of automated workshops, etc.
- Factoring and leasing. The lender of these programs redeems the borrower’s debt or leases any equipment in the ownership.
- Refinancing. The businessman’s creditor issues money to close the loan in another company, i.e. the actual borrower continues to pay off the debt but only with a reduced interest rate.
Terms of Loans
The minimum interest rate on loans is 5%. However, it is hard to find this figure when looking for a loan. For example, loans from almost all banks formally have a low-interest rate, but only on the condition that the borrower is a regular banking client. For the rest of the citizens, loans are issued at 11% per annum. General conditions for granting loans to people in business are:
- Availability of liquid collateral and guarantors.
- Compulsory insurance of collateral and life.
- The age of the borrower at the time of debt repayment is not more than 65 years.
- The presence of stable earnings for six months after the opening of the company.
Requirements for Borrowers
The procedure for issuing loans is worked out in all companies. Financial organizations carefully check all businessmen who have applied for loans to minimize risks. The examination of the client includes financial analysis. It is better if a potential borrower provides checks from deposits and accounts. This will help bank employees to make sure about the client’s solvency.
It should be structured and informative. This document contains the financial and economic development strategy of the company. The entrepreneur needs it to calculate and justify the upcoming costs to the creditor. Managers do not have enough time to read the full business plan, so it’s worth preparing a condensed version of the document.
Even solvent customers need to provide guarantees in case of delay in payments. In the case of large loans, it will be material security. You can use the land, apartments, houses, securities, equipment, etc. as collateral. The lenders set low rates on loans to persons providing material security. Having several guarantors significantly increases the chances of approving a loan application.