There are many benefits to starting a small business. With the entrepreneurial spirit, you have the freedom to explore your creativity and have more control over your time. You can also potentially earn higher profits than your traditional nine-to-five job. But before you leap, there are some things you should know about financing: how to get it and how not to get ripped off.

Here, we break down everything you need to know about Small Business Loans: what they are; why you need them; and how to qualify for one.

The NeedForSmall BusinessLoans

Some people think that if you have an idea for a business, then you should just go ahead and do it without any financing. But when you are starting your own company, there are many expenses. Even when you are simply starting, there are still needs for equipment, licenses, permits, office space– the list goes on.

It is difficult to pay for these upfront costs without taking out a loan or asking friends or family to help provide capital.

To get your small business off the ground in the early stages, you need to take out a small business loan. This can be done through banks, credit unions, or online lenders– all of which have different rates and lending requirements. You will want to do some research into each one to find the best deal for your situation and budget.

How ToQualifyFor ASmall BusinessLoan

Getting a small business loan is more competitive than ever. With banks tightening their lending requirements, it may be difficult to even qualify for a loan. Lenders today are looking for businesses that have demonstrable cash flow and collateral, or assets that can be liquidated if the business defaults on its loan.It’s important to know what lenders are looking for if you want to qualify for a small business loan:

  • A strong and proven track record: Lenders today want to see that your company has been in operation for at least two years and made at least $250K per year in annual revenues.

  • Clear, attainable goals: The lender will want to know the details of your plan for how you’re going to use the money they’re lending you. This includes having an exit strategy and knowing when you need the money.

  • Strong collateral: If your company doesn’t have substantial assets or cash flow, lenders will want to see some form of collateral–this could be real estate, stocks, bonds, or inventory (these must be valued at least 20% higher than the amount of the loan).

4) Personal guarantees: Even if you don’t have collateral or strong cash flow, personal guarantees can help make up for your lack of qualifying factors. Personal guarantees mean that if your company defaults on its loan, you would be held personally accountable and liable for repaying the lender’s losses.

What ToDo AfterYouGet The Loan

After you receive Small Business Loans, it’s important to know what to do with the money. With your newly acquired capital, evaluate your current financial situation and think about how much you need to grow your business. For example, if you’re looking for funding to purchase inventory or acquire new equipment, you might be better off borrowing less than $250,000 because those types of projects typically don’t require as much investment as larger ones.