What Is a Small Business Loan?
A small business loan is a lending arrangement between a lender and a business owner or group of owners. The borrower agrees to pay back the principal balance plus interest in regular payments made over time.
The interest rate may be an APR (annual interest rate expressed as a percentage), or it may be defined with a factor rate (flat percentage of the principal). The lender usually requires some collateral to secure the loan, such as property or another asset. This fact is especially true in the case of small business start-up loans.
The money may be used for any business purpose, such as expanding operations or construction of a building, for example. If you think your business might be ready to take this step, let FMS Bank help you get started.
How Does a Small Business Loan Work?
Allowing for variation from lender to lender, here are three factors that lenders consider in approving a small business loan.
- Your personal credit score matters, especially if your business is new or has no credit history on its own.
- The length of time your business has been in operation influences lending decisions. The longer your history, the more stable your business appears to a lender.
- Your annual revenue tells the lender whether or not you can make the payments on your loan.
What Are the Advantages of a Small Business Loan?
Small business loans have some advantages over other kinds of borrowing, such as credit cards. Here are a few to consider as you look into your options.
- Flexibility: Many lenders have different types of loans available to the entrepreneur. Interest rates, length of time to repay, and other factors vary, so you have options from which to choose.
- Retaining ownership: Some forms of business lending involve giving up part ownership of your company or a percentage of the profits. Small business loans do not involve this type of arrangement.
- Lower interest rates: While a small business loan may be harder to get than a credit card, the interest is almost lower with the small business loan rates.
- Tax benefits: Small business loans have some tax advantages for the entrepreneur. The part of your profits that goes to repay the loan is tax-exempt.
These factors vary by lender and situation; consult a professional to determine the specifics for your business.
Why Choose FMS Bank?
Taking on a small business loan is a big decision for your company. You need a capable, experienced lender who can help you understand all your options. Visit FMS today and let us help you make your business dreams come true.
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