Financial technology companies have facilitated the process of securing small business financing for entrepreneurs by reducing the traditionally time-consuming task of visiting a bank‘s branch or filling out tons of paperwork.
However, statistics show that less than half of the small businesses in the United States applied for a loan during 2019 although 52% of these companies feel that their financial needs are not fulfilled.
Is it possible that this gap between the number of small businesses that require financing and those that actually step forward to apply for it is caused by a long-standing bias about how difficult it is to obtain a loan?
Although we cannot give a bold YES, that assumption seems likely, which is why we have come up with this small business financing application checklist so business owners can understand how easy it is to secure fresh funding for their companies nowadays.
How does the application process work?
The application process for small business financing these days has been reduced to filling a few forms by providing some information about the business owner and the company, while approval times have been slashed to as little as a few hours – although the actual time window varies depending on the loan provider.
In some cases, the application process can be completed online and documents can be sent out – back and forth – through email, which reduces the time it takes to complete all the steps.
In the past, small business financing was only offered by big financial institutions. However, a new breed of financial services providers has emerged to assist these companies in their needs. In the US, Camino Financial is one example of fintech that make it easier to access financing.
What are the requirements to be eligible for small business financing?
Similar to any other type of loan, there’s a certain minimum criterion that needs to be met to be eligible for small business financing.
Time in business. The actual requirements vary from one provider to the other, most financial services firms require a minimum of one to two years in business to be eligible for these loans. Although, some fintechs only require 9 months.
Revenue. On the other hand, there’s also a minimum amount of annual revenue that the business must generate, ranging from $25,000 to $50,000 per year for candidates to be considered eligible.
Bank statements or tax filings may be required to prove that such amount of revenue is being produced by the business and, in some cases, it can be supplemented by any other form of income earned by the business owner.
Credit history. The credit history of the business owner will also be analyzed, with a minimum credit score of 500 usually required by providers, although most firms offer small business financing to people with bad credit, which has more flexible requirements but could require collateral or charge significantly higher interest rates.
SSN or ITIN. Other conditions may include having a Social Security Number (SSN) – although some providers offer ITIN loans as an alternative – along with a minimum percentage ownership – typically 50%.
What is the cost of borrowing a small business loan?
The actual interest rate applicable to small business financing varies depending on the borrower’s credit situation, the business’s income, and whether the loan is secured or not.
In the case of Camino Financial, interest rates start at 1% per month and can go as high as 2.5%, with the credit term ranging between 24 and 60 months.
Additionally, some providers may charge an origination fee and other similar transactional expenses, which are usually reflected in their advertised Annual Percentage Rate (APR).
Obtaining small business financing has been made easier for entrepreneurs in the United States as fintech companies have used technology to expedite the application, approval, and funding process.
The amount of paperwork required has been diminished to a few forms and the minimum requirements have also been softened, which gives you better chances to get the money your business needs to keep growing. Don’t feel ready or still have doubts? Then do a little research, find a lender that makes you feel confident, get in touch and if you feel that they have a genuine interest in your company’s success, go ahead and take your business to the next level!
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