Installment loans for small businesses

In these times of quick funding and low interest rates, small business owners might overlook the possibility of installment loans. Because they require more documentation, than any other type of loan product on the market, they are not as easy to obtain. 

This type loan – which is a lump-sum loan that you pay back over a time-determined period of money – can be beneficial because it gives you predictability. Your business.

Joseph Meuse is the founder and president Business GPS. He said that he prefers installment loans over other loan products because the payment options can change and the APR may not be clear. While most business owners can deliver a product/service, they aren’t CFOs. The loan product is simple to understand, budget for, and budget for.

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How do business installment loan works?

Commercial installment loans function in the same manner as a car loan or mortgage: you borrow a lump-sum amount and pay it back over 12, 24, 36 and 48 months. Sometime, this can take longer. Your credit score is a determinant of the interest rate. A borrower with a good credit rating will pay less than someone with bad credit. Installment loans can also be used to buy equipment and goods, to consolidate or purchase working capital, among other uses.

You need to decide if an installment loan would be the best product for you business.

Josh Jones from Kapitus, director of revenue said, “You don’t want to take out too much debt to meet a cash flow requirement that may be very short.” “Knowing what your needs are is very important.”

What are the various types of commercial loan installments?

Installment loans for small businesses can be used to buy business equipment and vehicles, to acquire property or to pay off large amounts of debt. They can come with different terms depending upon the business you run.

  • For long term loans – These loans usually have terms of six years and more. They can be used to buy large-scale items, such as a company car or property.
  • Medium term loans – These loans usually have terms between two and five-years. They are often used for equipment purchase or to finance expansion.
  • Short-term loan – These loans can be repaid in less than two year terms. They can be used for inventory purchases, working capital, short-term cash needs, and other short-term cash needs.

The loan term will have a longer repayment period, which will result in higher interest rates and a harder approval process. Lenders can take on greater risk when they make a commitment to you for six year terms instead of just 18 months. They charge more.

Jones said, “Whether you are using it to buy a car, equipment, or a home mortgage, you must make sure that the money is used for the purchase of something you have purchased within the repayment period.” An installment loan may not make financial sense if the money isn’t used within the repayment terms.

What information is required to apply in order for a business loan?

It’s not easy to get a small business financing option such as an installment loan. All lenders including banks, credit cooperatives, and alternative lenders can offer installment loans to small businesses. However, these loans will require a higher credit score and better business performance than other types. This is especially true during COVID-19, when lenders were more cautious due to increased risk. This means that you need a strong credit score, a stable business, and the willingness or ability to provide collateral.

Meuse stated, “If you have assets or equipment, realty, or accounts receivable, an installment mortgage is right for you.” “There are more requirements these days. There is sometimes more documentation and a higher loan to value ratio. The ratios are smaller, but lenders have a big appetite.

We’ll show you how to apply for an installment loans, starting with your credit score and ending with your bank statements.

Credit score

Lenders don’t like taking risks so your chances of getting an installment loan with low interest are dependent on your ability repay it. This is where you and your personal credit score come in. Lenders will consider your personal credit score when assessing your creditworthiness. This is especially true if your business has not been in existence for years. A low credit score can lead to a denial of loan applications or a higher interest rate. Banks, credit unions, and other lenders generally have stricter credit requirements. Lenders can help small business owners with low credit scores.


Business installment loans must be secured. Collateral can be any asset (equipment, accounts receivables, property) that the lender receives if the borrower defaults on their loan repayments.

Personal guarantee

Lenders may require collateral, but not unless you own a business with proven revenue growth. This is a legally binding declaration that you will repay any loan if your enterprise fails.

Business plan

Lenders will need details about your business before they approve you. This is where the business plans come in. A compelling story is essential. You can present it in slideshows or printed in print. This will show potential growth paths and your plans. It should be easy to read and concise. The plan should explain how you will repay the loan as well how much.

Documents personal and professional

Lenders require many documents about your business as well as your personal finances in order approve your loan application. Some lenders require more documentation than others, but it’s still important to have all necessary information before you apply. The most common requirements are those that all lenders have.

  • Bank statements
  • Retrieve income tax returns
  • Business plan
  • Proving ownership of the business
  • Personal Information

Small business owners can consider installment loans as an option. However, it is important to shop around for the best lender and make sure they are informed about all options. Do not be locked into a high-interest loan with many hidden fees. Libby Morris from Funding Circle US is vice president of operations and stressed the importance of paying attention to all costs associated an installment loan.

“We’re looking for responsible lending practices that are open and transparent. Morris said. Morris stated that small-business loans are not as well-regulated as consumer loan. Although you might get a lower rate, hidden charges are often added to the loan. Morris stated that lenders should not charge prepayment penalties to prepay loans.

Morris advises that you expect a counter-offer to your lender when applying in installment loans, particularly in today’s market. Lenders don’t want to take too big a risk because of the coronavirus. They are willing to lend money, but may not be as generous. Morris stated that it was no surprise that a company owner requested $ 500,000 and was approved $ 300,000.

She said that you have to be flexible about the amount of money you really need.

Thelma J. Longworth

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