Choosing the Right Loan Options to Kickstart Your Small Business

10 min read

Starting a small business in this day and age often seems like a daunting task. One of the most difficult aspects of getting ready to launch a business is finding a business loan that meets your store’s needs and target budget. Luckily, online platforms have completely changed the stuffy way lenders traditionally approach business loans.

If you’re looking to kickstart a small business online without the headache, there are a few simple steps to ensuring a smooth glide path to success.

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Getting Started

Whether you’re going to your local bank or checking out an online platform, there are still a few key factors in you getting that loan. First, let’s look at what lenders look at when sizing up your business platform.

Do you qualify?

Most lenders like to see a business startup that has already proven its drive to succeed. But, remember, time is money, so the more time you’ve put into planning and building a platform could drastically increase your chances of getting a loan.

If you’ve already started a store with Ecwid, take a look at past and current sales to provide lenders a timeline of your repayment options. Lenders are going to want to see your cost vs. income ratio to be sure your business has the appropriate potential income.

Look at your credit history

Without substantial revenue and time in business, lenders will primarily look to your credit score to assess their risks. Depending on which specific loan you are applying for, on average your credit score will need to be at least 660.

Of course, lenders are willing to look at other factors, including:

  • Age of credit history
  • Amount of derogatory remarks
  • On-time payment history
  • Your ratio of used credit

Even if your credit is not currently where it should be, traditional lenders may be willing to give you a chance with a proper and realistic plan for growth.

Does your store have income?

If your store has been in business for a while, lenders may want to see your track record. Normally, lenders will want to know that you’ve earned a minimum of $50,000 by the end of your second year. Without this, their decision will most likely fall on your credit score and collateral.

What do you have to offer?

Offering some type of collateral is a great way to catch a lender’s attention. Some of the most popular forms of collateral are homes, land, vehicles, and potential assets. If you have something that the lender can use for security, this will drastically increase your chances of securing a loan with a lower APR.

Why Do You Need Money?

Any lender is going to want an explanation of how you plan to use your loan. For example, they want to know what business-related expenses require the loan and how funding will increase your potential revenue.

You will also need a concrete estimate of the exact dollar amount required to finance your goals. For example, if you plan to fund operating costs and miscellaneous expenses, plan how long it will take to recoup those funds.

Alternatively, if you want to expand your business and what you can offer your customers, take a look at the cost ratio and how expensive any new products or services will cost the consumer.

Check Out Your Options

You’ll want to examine multiple lenders and loan opportunities before settling for your first option. However, as long as you do your research, you can find plenty of finance options to kickstart your business goals.

Business credit cards

Credit cards are great for smaller loans because of the fixed interest rates and flexibility in how much you borrow. Special credit cards allocated to business expenses also help you when differentiating business spending from personal spending.

Online lenders

This is often the best option if you decide to keep your business on an online platform like Ecwid. With decent credit and an established revenue source, you could see a loan with an annual percentage as low as 6%.

Collateral is rarely required with online lenders, and your funds are more easily accessible in a shorter period.

Traditional bank loans

A traditional bank is most often the hardest loan to get. They will likely require at least two years of experience growing and maintaining steady revenue, and most banks require a much higher credit score and collateral.

However, a traditional bank will most likely have the lowest APR rates as long as you qualify. With great credit and an established income source, you can get loans as high as $5.5 million for a small business, but you may have to wait a bit longer to access your funds.

Microlenders

These lenders typically work with small businesses that are new or have bad credit. Generally, they lend a maximum of up to $50,000, and they will want a detailed plan for business growth and revenue sources.

Because these lenders work with clients that are considered high risk, they usually come with higher APR than traditional banks. However, they do not always require collateral or established credit.

Be Prepared for a Direct Approach

One of the most important steps in securing a loan is preparing a detailed business model for your potential growth and cash flow. Lenders want to see evidence that you have a plan for success and will follow through.

Prepare your documents

On top of your business model, you will need several business documents to secure a loan with most lenders. These may include:

Have these ready before contacting the business. However, you are free to browse options to see which lenders you prefer while you prepare them. Coming in fully prepared will inspire more faith and confidence in your business potential.

How long have you been in business?

If you are fresh on Ecwid, you may have only been in business for a few days, weeks, or months, but you may still qualify for a business loan. Lenders typically want to see established businesses with at least two years of documented income. However, with great credit and collateral, this may not be necessary.

If you are on this online platform and do not currently have collateral, there may be online lenders still willing to work with you. Of course, if you’ve generated revenue, that’s a great start, but online lenders understand that sometimes loans are necessary for building your business.

What expenses are essential?

Lenders want to see what their money will be funding. Of course, this guarantees that their money will not be buying someone a yacht instead of funding a business. However, it also shows them that you can plan and coordinate everyday business operations.

Come to your lenders with a detailed outline of current and projected business expenses and what type of revenue those expenses generate. This includes the cost of daily business operations, as well as the cost of producing your products and services.

Then, they will want to see what you can realistically sell your product or service for. So, you can either come prepared with past and current sales documents or show sales in a related business market that proves your business provides a need for consumers.

Go Ahead and Apply!

You’ve put in the work and time, so now it’s time to contact a lender. If you have decided to pursue online options, log into your chosen platform with your plans in hand. Then, fill out any required forms, and then finally, hit that submit button.

For lenders with a physical location, call and set up an appointment, dress the part, and prepare to answer their questions thoughtfully. Again, present your best self to establish a good rapport with your potential lenders. With a solid plan and honest confidence in your success, nothing can slow you down!

Do you want to learn more about starting a small business?

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About the author

Max has been working in the ecommerce industry for the last six years helping brands to establish and level-up content marketing and SEO. Despite that, he has experience with entrepreneurship. He is a fiction writer in his free time.

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