Financing for Small Businesses

Financing for Small Businesses

The past 24 months have seen a considerable shift in interest rates as the Prime Rate, the rate associated with most loans made to small businesses, has increased considerably. This is an interest rate environment most small businesses have not had to operate in as rates hovered at historic lows for more than a decade. So, with that, what are the financing options for small businesses in 2024 if funds are needed to assist with business operations?

What are Small Business Loans?

Small business loans are loan options and other financial products that have been designed to meet the needs of small business owners. These loans come in various forms and lengths. Small business loans could be lines of credit to assist with operations, commercial real estate loans to fund the purchase of real estate, term loans to finance capital purchases, and SBA guaranteed loans. Small business owners can use these financing options for various purposes like purchasing inventory, covering operating expenses, or investing in expansion opportunities. The benefits of obtaining small business financing include access to necessary working capital and maintaining steady operations during lean periods.

Why should Small Businesses Borrow Money?

The primary purpose of lending to small businesses is to provide support to entrepreneurs and assist them in achieving their long-term business goals. This achieved by community banks such as First Bank providing small businesses with the necessary financial resources they need. This could mean securing funds to help fund the day-to-day operations during slow seasons a business may sustain or provide much needed funds for research and development and future launch of a new product or service. Loans provided by community banks can also allow small business owners to seize growth opportunities that might otherwise be unattainable due to financial constraints.

How do Small Business Loans work?

Small business owners can meet with one of our experienced loan officers to discuss loan options that are tailored to fit their specific needs. For example, a small business owner may need funds to assist with the purchase of new equipment to increase their business lines or run the operation more efficiently. The small business owner would meet with one of our loan officers and discuss financing that aligns with these requirements. Our customers have the flexibility to choose from various financing options, such as lines of credit, term loans, and SBA loans. Each option comes with its own set of terms and conditions designed to suit the different types of needs that our small business owners have. This allows small business owners to select the financing options that match their unique circumstances.

Working Capital Needs

We have all heard the term, “Cash is King”. The ongoing working capital needs of a business play a key role in examining the small businesses borrowing requirements. For example, seasonal businesses may require additional funding during peak seasons to manage inventory and staffing costs before revenues catch up to meet the business’s needs. Our lenders understand these fluctuations and work with the small business owners ahead of time to to assess when they might need extra funding. Establishing an operating line of credit guarantees the small business has funds available when needed to maintain sufficient working capital when it’s most needed without disrupting regular operations and forcing the small business owner to worry about meeting their cash needs.

How do I qualify for a Small Business Loan?

Most lenders and financial institutions determine loan eligibility by assessing the prospective borrower’s creditworthiness and the business’s viability. Here are some of the critical factors that First Bank examines to determine if a small business qualifies for a loan from the Bank.

Balance Sheet, Income Statements and Other Financial Records

In evaluating small business borrowing requests, our experienced lenders examine financial records such as balance sheets, tax returns, and current profit and loss statements. These financial documents provide insight to our lenders into the financial health of the small business. The Bank then uses this information to examine the ability to repay the borrowed funds. It is very important that small businesses keep accurate and up-to-date financial records. Small businesses that maintain organized financial records improves their eligibility for a small business loan. These records provide the Bank with valuable insights into cash flow patterns, revenue trends, and overall profitability – all of which contribute to assessing the long-term viability of the business.

Personal Credit Score

Lenders will often consider the personal credit scores of business owners, especially for small businesses without an extensive business credit history. The majority of the time, the business owner will be asked to personally guarantee the loan. With that, your personal credit score is vital in determining your eligibility for a small business loan. A higher credit score indicates that debt has been successfully managed in the past and that payments have been made on time. Demonstrating a strong credit history increases the chances of qualifying for a small business loan. Entrepreneurs that maintain a good personal credit score is essential because it reflects their ability to manage finances responsibly.

Steps to Improve Eligibility

To improve chances for qualifying for a small business loan, small business owners can take proactive steps to assist in being approved for a loan. Having a well-thought-out business plan that outlines how the borrowed funds will be utilized showcases diligence and foresight – qualities that resonate positively with the Bank. Business owners that manage ongoing debt levels effectively by paying down existing debts or consolidating them where possible is a plus. Demonstrating consistent revenue growth through robust sales strategies can also bolster eligibility for a loan.