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| Funding for Small Businesses — The SBA Loan: What It Is and Its Disadvantages |
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Running a small business can be a rewarding experience. Many times small businesses are run by a single individual or by a small group of individuals. These small operations can be home-based or run out of a small office. They cover everything from sales to services in just about every industry. Funding is a major consideration for small businesses, which often have limited resources.
|  | | Cash advances can provide small businesses with the funding they need in less than a month. |
There are many small businesses which start out as part-time additional-income jobs and quickly grow to become full-time businesses. As a result, many times there exists a need for additional funding to be able to handle the explosion of growth that some small businesses see within the first few years of business, that in some cases exceeds that which can be supported by existing profits.
This is where the SBA or Small Business Administration Loan comes in. These loans are designed for small businesses, to provide funding for just about everything that may be necessary when running one. There are several types of small business loans that can be obtained through the SBA. The first is the basic loan.
This is the primary option offered by the Small Business Administration. It is the most flexible program and capital can be used for everything from working capital to debt refinancing. Maturity on the loan is 10 years for working capital and 25 years for fixed. The basic loan is good for existing businesses, and is offered through commercially-based lending institutions.
Several other small business loans carry stricter guidelines, such as only being available for costs associated with buildings, or for supply costs. Limitations regarding the amount that can be borrowed also exist. In the case of the micro loan offered by the SBA, it is not guaranteed, and is usually provided through an intermediary. This type of loan is only available in select locations -- while it may be available in most states, there are some in which this loan is not an option.
While these loans may sound ideal, there are some attendant serious disadvantages that can make them difficult to obtain; the process itself can also be a lengthy one. They also come with interest rates that vary depending on the loan, and on the institution that provides the loan.
Commercial lenders offer small business loans. This means that they are offered by banks or other lending organizations and are usually for intended for businesses that cannot obtain financing through traditional loans. The criterion used to secure such a loan is fairly strict, and depending on the loan and the loan period, the business may remain in debt for a number of years.
The necessary prequalification for this type of loan examines your business and asks the following question -- what type of business is it? Since it is a small business, the lender or even the Small Business Administration will look at personal credit, credit history, business history and a host of other criteria, which can either work for or against you, possibly leaving your loan request denied.
This means a lengthy process of paperwork filing and review. It could take months for you to obtain financing if you are able to obtain financing at all. Many businesses cannot wade through a lengthy prequalification process or an even lengthier loan review and application process. As a result, many small business owners are looking into alternative funding sources such as the one offered by merchant credit advance.
Cash advances can provide small businesses with the funding they need in less than a month. It usually takes only a couple of days to get approval, and then up to two weeks to receive the cash you need. The process works by taking a percentage of the credit card sales revenue that your business will make using future Visa and MasterCard transactions. In other words, you sell a portion of your future sales to the cash advance company in exchange for cash now.
There are some criteria to obtaining this type of cash advance: you must be in business for at least 12 months, and you must have a minimum monthly credit card sales balance of at least $5,000. There is no repayment schedule, which means you can pay it off as soon as you like; however, the company usually takes a percentage of daily sales once they have been reconciled.
Also, you may be eligible for additional advances as soon as 90% of the original advance is paid off. This is another advantage over traditional loans, which may limit your financing or borrowing ability based on the debit-to-income ratio.
The filing process is also relatively quick -- simply fill out the application and supply proof of your business such as license and tax returns. This is all you need to take out a cash advance against future credit card sales. You should note that the advance also must be used as working capital, or for improvements for your business such as equipment or renovations.
The Small Business Administration does offer financing options for loans that can help businesses that need help expanding, but they do come with some serious disadvantages and are often subject to strict lending guidelines. Even the type of business you operate could limit your lending options. Many small businesses are looking into alternative financing means such as cash advances as a result.
These cash advances examine how long you have been in business and how much you process in credit card activity within a given month. They then offer you a percentage of future sales as your advance. This makes it highly advantageous in many situations, and cash advances do not have such strict use guidelines as do small business loans.
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