Tips for Getting and Using Alternative Small Business Loans

A few years back, bank loans were the main financing option available to small business owners. However, times have changed, and small business owners have a variety of financing options that they can choose from. In fact, some of the alternative loans come with numerous advantages. For example, federal loans for small businesses come with a low interest rate. Others such as the merchant cash advance provide instant loans and require proof of sales. So how can you acquire such loans as a small business owner? You can do so by using the following tips:

1. Make Sure you Can Afford the Loan

You might think that you need a certain amount to grow your business, but after careful analysis you realize that you cannot afford to repay the amount on time given the current state of the economy and your business's earning capability. So that you don't cripple your business with too much debt, it is advisable to borrow an amount that you can afford. Once you get the money, and you find out it's not enough for what you'd planned for, re-strategize and work towards your goal slowly.

2. A Good Credit Score is an Added Bonus

Although there are alternative lending options that don't consider your credit score, you ought to work on your credit score. We are creatures of habit which means that once we are used to doing something, we find it hard to let go of such an activity. The same goes for your credit score. You get a low credit score because you don't pay your debt on time. A lender is less likely to approve a loan if you have a low credit score because they assume that you are going to misuse the funds the same way you fail to take care of your personal money.

3. Find Out the Type of Alternative Financing you are Eligible for

Another way to get approved for an alternative small business loan is to check one's eligibility. According to statistics, most businesses fail after the first and second year. It means that if you have been in operation for more than 2 years, you are more likely to get funded. Your lenders may also want to know your annual revenue figures. If your revenues are constant and sufficient to cover monthly loan repayments, you can be considered for funding. Other lenders look at savings. Since your business is likely to experience ups and downs, you need to have cash in the reserves in case things go sour. The lender may be more willing to give you money if you have some substantial savings in your account.

4. Find what Suits You

The best way to get an alternative small business loan is to shop around and look at the available options. If you cannot meet the requirements of one financing option, look at the other. There is always something for all types of scenarios. Practice patience, ask around, and approach the lenders to see what special offers they can give you.

5. Making the Choice

Before you go for an alternative small business loan, let your goals guide you. You need to know why you need the money. For example, if you need the cash to sought out a one-time expense, you ought to apply for a short term loan. Alternatively, if you need the loan to make payments because business is slow, you can go for a merchant cash advance.

6. Documentation

After you have made the choice, you have to begin the application process. The lender may require some documents to prove your identity and business viability. One such document is a business plan that tells the lender about your operational model, business objectives, and vision. You may also need to show how you use your finances. The balance sheet and profit & loss statement should come in handy here. Other documents include your personal and business's tax return records to prove that you pay your taxes as a responsible citizen.

Summary

If you want to get approved for an alternative business loan, consider the above tips. Make sure that you know the amount you are going to borrow, your eligibility for such an amount, and how you are going to use that money.