How to Get a Business Loan in 2024

Have you noticed that almost everyone has one business they call a side hustle?

The changing state of the economy and people’s creativity have given rise to business ventures. 

Attaining financial stability and success is one of the significant challenges for businesses. It happens due to a lack of economic capacity and sustainability, hindering businesses from reaching their full potential. Taking loans for business can overcome financial challenges and promote business growth, driving the company to its potential.

Key Insights

1. Side hustle are more popular as a result of inventiveness and changing economic conditions.

2. Business loans are divided into two categories: short-term (up to 12 months) and long-term (1-25 years).

3. These loans can be classified as secured or unsecured: secured loans need collateral, while unsecured loans are based on credit history.

4. Research and prudence are necessary to prevent fraud and guarantee appropriate financing options.

What is a Business Loan?

Business loan refers to the financial assistance you get to help fund your enterprise. Banks, private companies, governments, and individuals offer this type of loans. These loans can be classified under two broad categories;

1. Long-term Business Loan

Long-term loans can be paid back in a year, and some can even take as much as 10-25 years to return. With a long-term loan, you can get a large amount of money to fund your business. 

2. Short-term Business Loan

Short-term loans are paid back in a short period, usually within 12 months. Unlike long-term loans, with short-term loans, you can only get a few funds for your business. 

Both long-term and short-term loans have advantages and disadvantages. It is important to understand which one will help your business based on its type, current phase, and goal. 

Types of Business Loans

The following are some of the most common types of business loans; 

1. Term Loans

Many entrepreneurs take term loans for businesses. Term loans provide a one-time injection of cash that you repay in fixed installments, usually monthly. 

This is why term loans are ideal for a variety of needs, from acquiring essential equipment and expanding inventory to launching a strategic marketing campaign.

2. Working Capital Loan

Working capital loan falls under the short-term loan category. This type of loan is taken to finance the company’s day-to-day activities, such as debt payment, payroll, rent, and inventory. 

Working capital loans are not expected to purchase long-term assets or investments but to finance a company’s short-term operational needs and expenses. 

3. Overdraft

An overdraft is also one of the short-term loans for business mainly obtained from banks. This type of loan allows you to withdraw excess amounts from your account. Overdrafts also enable you to cancel even if your account has a zero balance. 

An overdraft is expected to be paid back over the given period. This type of loan is usually used to sort emergencies as it can be used for less than two days. In some cases, banks may also have a long-term overdraft depending on their system of operation and terms and conditions. 

4. Invoice Financing

Invoice financing allows businesses to borrow money against the amounts due from customers. It occurs through payment factoring, invoice trading, and invoice discounting. 

Invoice financing helps most businesses improve cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full. 

5. Asset Finance

Asset finance falls under long-term business loans. Asset finance allows businesses to borrow money using an existing asset, such as equipment or inventory, as collateral, making access to funds available while still retaining the asset. There must be a security interest on the asset used as collateral. 

6. Start-up Loans

These are also known as new franchise finance and can be short—or long-term loans for businesses. They help start and expand a business. 

This type of loan might be difficult to get as lenders assume greater risk. However, there are forums that deal with startup loans, so they’re advisable for new businesses. 

How Does Business Loan Work

According to Forbes, business owners have options for unsecured and secured loans for business. Hence, you should compare the best loans to find the lender that fits your business needs. 

To understand how business loans work, knowing the difference between secured and unsecured loan types will help you make informed decisions about which one is right for your business.  Here’s a breakdown:

1. Secured loans

Secured loans offer a way to borrow money by putting up something valuable as a guarantee, usually called collateral. This collateral assures the lender you will repay the loan with interest, following a set timeframe. 

Lenders prefer tangible items they can quickly sell for cash when the agreement is breached. The following are examples of collateral lenders:

1. Real estate (land, buildings)
2. Business equipment and machinery
3. Investment accounts, savings accounts, life insurance
4. Collectibles with value (coins, precious metals)

Secured loans come in various forms, such as mortgages, home equity loans (second mortgages), home equity lines of credit (HELOCs), auto loans, secured personal loans, and secured credit cards. You can find them at banks, credit unions and online lenders.

2. Unsecured loan

Unsecured loans offer a way to access cash without putting up any assets as collateral. Loans are given to you based on your credit history and promise to repay the loan. It makes them a good option for more minor needs or situations where you want to avoid risking valuable assets or when you do not have any assets that can be used as collateral. 

Unsecured loans include unsecured credit cards, unsecured personal loans, and personal lines of credit

How to Get a Business Loan in 2024 

The following steps are essential to get a loan for your business in 2024;

1. Make a Business Plan

Drafting or revisiting a business plan will help determine the amount of money you need. Most private lenders only attend to loan applications backed by a business plan.

A business plan gives the lender insight into how viable the business is to increase the chance of getting the loan. 

2. Estimate the Amount You Need

Estimate the funding you need using your business plan. Then, you can talk to business owners in your industry to enlighten you on the amount required to avoid working with an assumed amount. 

Knowing the amount you need helps you to get a clearer view of how you want to use the money

3. Talk to a Financial Advisor

Taking the loan that suits your business needs can be confusing. A financial advisor will help give you insight on the type of loan to take for specific conditions.

The financial advisor knows the various finance institutions available and can help in creating a plan to repay debts by considering factors such as business profitability, business type, and how long it’s been operating, business owner’s income and Credit history. 

4. Decide the Type of Loan

You need to decide the type of loan you want after seeking financial advice. You can do in-depth research about various institutions and loan types to bolster the financial advice before you make a final decision. 

Pick the best option to favor your business and repayment method. The business loan calculator can be used to help you calculate repayment. 

5. Put in Your Loan Application

After choosing the type of loan and the financial institution you want to use, apply for the loan. It is essential to read through the eligibility requirements and compile all needed documents such as business registration details, tax ID, tax returns, bank statements, credit card bills, balance sheet and list of business assets (for secured loans). 

The application requirements and procedures differ from one institution to another, so make sure to follow all the steps of the application before submission to avoid non-approval or a long period of approval.

Read Also

9 Best UK Car Finance Company

Top 12 Unique Business Ideas for 2024

How to Create an Optimized Google Business Profile in 2024

2024 Best Website Builder for Small Businesses

Conclusion

If you are experiencing setbacks in your business due to a lack of finances or want to start a business but lack funding? It would help if you explored available loan opportunities by asking people, checking the internet (be careful about fraudsters), and walking up to financial institutions such as banks and development finance institutions, government loan offices, and private lenders’ offices. 

Remember to do in-depth research and explore your options before making decisions.

 

“Do you want to be ahead of your competition with our bespoke web development and digital marketing services? We are the right solution! Reach out to us and skyrocket your brand presence.”