Business loans are crucial to starting up and growing any business, especially in the early years. If you’re looking to start a new business in 2022, here’s what you need to know about business loans in the USA.
It’s important to note that interest rates on business loans are likely to go up slightly over the next several years due to increased inflation, but this should not affect most businesses significantly because of their large profit margins (except for start-ups).
Interest rates on small personal loans will probably continue to be low or even decrease.
The Importance of a Business Loan
Starting a new business is incredibly exciting. There’s a lot of hard work involved, though, and your start-up costs can quickly add up if you don’t have an adequate source of funding.
One good way to get capital is through a business loan. In 2022, US banks are expected to award as much as $220 billion in small-business loans; however, many new businesses aren’t able to secure one.
What steps can you take now to ensure that you secure a small-business loan when you need it?
Requirements for Getting a Loan
First, you need to prove that your business is real. To do so, many small-business lenders will ask for certain documentation—letters from investors, tax returns, proof of incorporation, and a marketing plan are all good places to start.
You’ll also want to show potential lenders how much money you’ll need to reach break-even; that could mean giving them your financial statements as well as a projection of how you expect your business will perform.
Finally, before applying for a loan make sure that you have gathered all your financials together and make sure they’re accurate before applying; if at all possible get an accountant involved early on!
Doing so will make it much easier to understand what your true expenses are going to be when starting a new business in 2022.
In 2022, to qualify for a small business loan, you’ll likely have to show proof of ownership. You’ll need to provide documentation that shows you are now or will be an owner of a percentage of your business as well as documents showing what you bring to your business.
In addition, there will probably be a loan application and multiple forms that need to be filled out along with any other documentation required by lenders at that time.
Lenders may require an up-front fee from applicants when they apply for a small business loan just like today—though perhaps it might be less expensive than today’s up-front fee.
The Future of Business Loans
In 2016, millennials surpassed baby boomers as America’s largest living generation. By 2022, millennials will comprise 75% of all small business owners and 64% of all Americans working in a business that’s less than five years old.
To bridge funding gaps caused by a lack of credit history, financial services companies and policymakers are working on new programs to help small businesses get off their feet. The results have been extremely promising.
Take Marqeta for example: In just two years since launching, they have funded over $100 million worth of loans to growing businesses—and they’re just getting started.
How Does a Business Credit Score Work?
Starting a business can be exciting, but it doesn’t mean you have to spend everything you make. Lenders will look at more than just your income when deciding whether or not to give you a loan, and one of their considerations is your business credit score.
Your credit score is based on how well you pay off your loans, bills, and other debts over time—so if someone has taken out multiple loans with high-interest rates, that could affect their ability to secure a loan later down the line.
To raise your business credit score and get approved for a loan today, check out our guide on business credit scores. We explain what they are, how they work, and more importantly, how to keep yours as high as possible.
How is beneficial getting a Small Business Loan?
A Small business loan can be an excellent way to fund your new venture. Many lenders are happy to help small businesses get started and loans provide an excellent way to do so.
Of course, like any other loan, you must understand what you’re getting into when applying for one.
In exchange for their money, lenders want to be repaid with interest; they also require collateral (i.e., some sort of asset).
If you fail to pay back your loan as agreed, a lender can take your collateral and sell it off—they may even go after your assets if necessary.
When deciding whether or not a small business loan is right for you, remember that there are many alternatives out there; check with various banks and credit unions before settling on one option.
How Long Does it Take to Get Approved?
Many small business owners who want to start a new business wonder how long it will take them to get approved.
The answer is that every situation is different, and as such, there’s no way to give a blanket statement about how long you’ll have to wait.
Approval times vary widely depending on your credit score and other financial markets, as well as what type of loan you apply for.
However, if you are well-prepared with a complete application package and an acceptable business plan in hand, chances are good that you can be approved within 60 days or less.
What are the Different Types of SBA Loans Available?
The Small Business Administration (SBA) provides several loan programs and loan guarantees to help fund small businesses.
The biggest is is 7(a) Loan Guarantee Program, which provides medium-sized loans (up to $5 million) to small businesses that can’t qualify with traditional lenders.
Other programs include Microloans (up to $50,000), Community Advantage ($200,000+), and Export Working Capital Lines of Credit ($2 million).
What Qualifies as an SBA 7(a) Loan?
The SBA offers an array of loan products, including lines of credit and short-term operating capital loans.
But it’s still important to know which loan types qualify as SBA 7(a) loans. The SBA only offers certain loan types through its online application system.
When Can I Apply For an SBA Loan?
The best way to find out when you can apply for an SBA loan is to contact a lender that specializes in SBA loans.
That’s because there are several different factors that go into processing and approving an application; as such, processing time varies depending on where you live, how much money you need and what type of business you’re planning on starting.
What Is On-Time Payment and Grace Period Regarding SBA Loans?
To maintain your SBA loan, you must make timely payments. There is a 60-day grace period after each payment is due during which you can pay late without incurring penalties.