Many small business owners are confused about how to get a grant or loan for their business. The difference between the two is that grants don’t necessarily compete with other businesses for funding; whereas loans often do. Loans are a type of debt-based financing that requires that the business demonstrate its ability to make periodic payments. To do so, the lender may review the business’s cash flow and other financial statements.
The lender will also look at the business’s credit profile and history, including how promptly it pays its vendors and its overall financial stability. Dunn & Bradstreet and Experian create profiles and scores for businesses that evaluate how well the company meets its financial obligations. Other factors that may impact the likelihood of receiving a loan are how long the business has been in existence and its annual revenue.
Traditional bank loans tend to have the lowest interest rates of all types of business financing. However, they typically require a strong personal credit score and several years of business operations for most entrepreneurs to qualify. Alternative lenders, on the other hand, often offer much more flexible requirements and a higher chance of approval for businesses with below-average personal credit scores. For instance, online lenders may consider a variety of factors that traditional banks do not, including the business’s current cash flow and its monthly sales, as well as how quickly it pays its vendors. They might even prescreen applications with a simple online questionnaire and provide a “yes” or “no” decision within minutes.