Small Business Borrowing Options
By E-Central Credit Union
We’ve all heard the expression: “It takes money to make money.” Nobody knows this better than small business owners, start-up companies and big idea entrepreneurs. It’s important that small business owners and entrepreneurs keep an open mind and explore all options when it comes to identifying the right financing for their business.
Whether you need to borrow funds to finance production and packaging for a new product, lease office or warehouse space, purchase equipment, or simply for working capital to fund day to day operations, stay positive. You may have more borrowing options than you think.
Business Term Loans: Sometimes also known as working capital or equipment loans, depending on the purpose of the loan and the type of collateral. A small business term loan from most traditional business lenders, including credit unions, can be used for a variety of projects to help your business grow, including buying equipment and real estate or increasing working capital and cash flow. Business term loans for businesses are generally used to finance the purchase of assets needed by the business — think land, equipment, or a vehicle. The exact repayment term is determined by the useful life of the underlying asset for which the loan is used.
Business Lines of Credit: A business line of credit is a revolving loan that gives business owners access to a fixed amount of money (credit limit), which can be used to run the day-to-day operations of the business, cover unplanned expenses, or even purchase equipment. While business term loans work well for paying for long-term assets that will be used over many years, business lines of credit are best for short-term operating purposes and for more immediate revenue-generating activities because the business owner can access funds as he or she needs them.
SBA Loans: Government-sponsored loans offered through the U.S. Small Business Administration (SBA) can help you meet your company’s borrowing needs. As an approved SBA lender, E-Central can help you secure the right SBA loan to meet your small business borrowing needs.
Entrepreneurs who are looking to startup a business or grow an established business can both benefit from a small business loan guaranteed by the SBA. SBA loans are made through banks, credit unions and other lenders who partner with the SBA. Unique benefits of SBA loans include:
· Lower down payments, flexible overhead requirements, and no collateral needed for some loans.
· Competitive Terms: SBA-guaranteed loans generally have rates and fees that are comparable to non-guaranteed loans.
· Counseling / Education: Some loans come with continued support to help you start and run your business.
Here are a few common SBA loan programs.
SBA 7(a) Loan. This is one of the most widely used SBA loans by small business owners, startups and entrepreneurs. Through the SBA 7(a) Program, loan funds can be used to:
· Grow your business
· Purchase equipment and inventory
· Acquire or expand an existing business
· Provide working capital to improve cash flow
SBA 504 real estate loan: SBA 504 Real Estate Loans can be used for owner-occupied commercial property or even investment properties. With terms up to 25 years, loan payments may be lower than you think. Typical uses are to purchase or refinance:
· Office buildings
· Retail buildings
· Warehouses
· Industrial use property
· Multiple-use property
Here’s a summary of the various types of financing options available for most small businesses:
Cash Out Mortgage Refinances and Home Equity Loans
In addition to traditional business loans, small business owners who own their homes and have substantial equity to explore borrowing against their real estate. Two loan options to consider are a cash-out refinance of your first mortgage, or a home equity loan or line of credit.
Getting Started
The first step is simple. Just sit down with a professional small business lender. Be prepared to discuss your business. A well-formed and detailed business plan that explains why you need financing, exactly what assets will be purchased with the loan proceeds, and how you expect your business to benefit from this purchase, is plus and something you will want to share with your chosen lender. The lender may ask you to provide information for all the principles.
In general, you’ll need to include (but aren’t limited to):
· Business financial statements for up to the past three years, including balance sheets and profit and loss statements (P&L), account receivables, and account payables.
· Three years of tax returns for the business and its owners (Individuals w/ 20% or more ownership)
· A debt schedule
· Personal financial statements on all of the business owners (Individuals w/ 20% or more ownership)
· The lease for the business premises, if applicable
· Financial projections for three years showing what you expect revenue and expenses to be, and demonstrating that operations will be able to repay the proposed loan
· Information about the assets to be purchased, including a copy of the sales contract or purchase agreement, if applicable.
About E-Central Credit Union: Based in Pasadena, E-Central Credit Union is a direct lender that offers affordable financing options individuals (consumer and home) and businesses. For additional information, visit www.ecentralcu.org or call 626.799.6000.
