Commercial Financing Best Practices for New Business in Shenandoah Valley
Launching a new business requires expert wrangling of multiple moving parts. Luckily F&M Bank is here to help you with the financial side of starting or growing your small business. Getting a small business loan in the Shenandoah Valley should not be complicated. F&M Bank’s friendly lending team is here to provide the information and insight that you need to obtain the best commercial financing for your sole proprietorship business in Virginia.
What is a business loan?
When a bank provides financing through a business loan, they are lending your business the money it needs in return for interest and fees. It is your responsibility as the business owner to make scheduled payments in order to return principle and interest to the bank over a set period of time. The business loan interest rate and length of the loan are typically determined based on the credit worthiness of the borrower and the type of loan.
What is a sole proprietorship?
Sole proprietorships are the smallest of the small businesses. Any individual conducting business activities automatically falls into the role of sole proprietor. Jewelry makers, writers, graphic designers – anyone working for themselves and making money is operating a sole proprietorship business. There is no separation between the business and the owner in a sole proprietorship. You get all the profits but also all the debt and liability that come with running the business. There are distinct advantages and disadvantages to running a sole proprietorship business.
Benefits of a sole proprietorship
- Licensing and permitting for a sole proprietor business is simple and inexpensive.
- Profits from a sole proprietorship are written up as your personal income and do not require separate tax filing.
- Business decisions are easy because there are no employees or board members to consult.
Disadvantages of a sole proprietorship
- Obtaining funds to start and run a sole proprietorship can be difficult as there are limited opportunities for investors to take a share of the business.
- Loan approval can be difficult for a sole proprietor with no business credit history and limited collateral.
- Personal liability as a sole proprietor is unlimited since there is no legal distinction between the owner and the business.
Types of Business Loans
When you need money for your small business, there are many different types of commercial loans from which to choose. It can be confusing trying to decide which type of financing is best suited for your unique business needs. Here is a brief overview of some of the different business loan financing options available. The knowledgeable associates at F&M Bank can help you narrow down the best loan product for your small business.
Business Term Loan
A lump sum loan, business term loans have fixed interest rates and predetermined payback schedules. A business term loan will give your company an injection of cash to use for a large purchase. As soon as you receive the loan amount you will begin to accrue interest and start monthly payments.
Business Line of Credit
Similar to a credit card, a line of credit is a preapproved loan amount that can be accessed over time. Rather than receiving a lump sum payment, business owners can draw from their commercial line of credit as needed. With a business line of credit, you only pay interest on the actual money borrowed and the not the entire approval amount. One loan application gives you access to funds that you can take as needed during a set draw period.
Government Assisted SBA Loans
SBA business loans in Virginia offer lower interest rates and more lenient conditions for loan approval through backing from the U.S. Small Business Association. This government funding allows banks to make riskier loans to small and fledgling businesses by guaranteeing to cover part of the losses should the small business default on the loan. There are fees and restrictions associated with SBA loans but, for those who qualify, SBA loans can provide the funding you need to stay afloat and grow.
Merchant Cash Advance
A business cash advance is appropriate for businesses that receive a high volume of credit card sales. As the business owner, you receive a cash advance that is recouped by the bank through merchant account services fees and interest. Each time a client pays with their credit card, a larger than normal fee is subtracted from your profit to pay back the cash advance over time.
When your business has a specific need for new equipment, whether it be furniture, computers, or heavy machinery, an equipment loan is the proper choice. The bank will consider the cost of the purchase, expected lifespan of the equipment, and your ability to repay the loan. Typically, the equipment itself will serve as collateral for the business term loan.
Business Credit Cards
Much like personal credit cards, business credit cards can provide the purchasing power you need to make it through an off season or cover a large expense. Business credit cards also build your business credit score which will help you qualify for future commercial loans. Using a business credit card instead of a personal account helps sole proprietors keep business expenses separate from their personal spending. This can help at tax time by making it easy to find and list your business deductions.
Commercial Mortgage Loans
When you need land for your business or a commercial building, a commercial mortgage is the first step. Warehouses, offices, and retail space can be purchased for your business even if you are a sole proprietorship. Owning the commercial property that your business relies on can add a sense of security as well as increase your business credit and equity over time.
Because personal and business finances are intermingled as a sole proprietor, a personal loan is a suitable option when you need funding. The loan amount of a personal loan may not be as large as a commercial loan, but the approval process may be simpler than a business loan. Your personal credit history and debt to income ratio can help you secure the money you need to help your business succeed.
How do I get a business loan?
Applying for a business loan is similar to any car loan, mortgage, or personal loan you may have received in the past. Your personal credit history, cash flow, debts, and collateral will be taken into account by a local lending team. In addition to your personal finances, the bank may consider the type of business you own, your commercial profits and debts, and how long your business has been operating.
If you are thinking of getting a small business loan in the Shenandoah Valley, gather the following documents:
- Business plan
- Profit/loss forecast and growth plan
- Business license and registration
- Personal and business tax returns
- Bank account statements
- Invoices and sales records for your business
- Current lease or mortgage for your business
Get the commercial funding you need from F&M Bank
F&M Bank proudly offers business lending in the Shenandoah Valley. Small businesses and sole proprietorships help our community thrive, and we are here to support your financial growth. Offering the best business loan interest rates in Harrisonburg & Augusta County, our knowledgeable associates use local insight to make sure you get the best commercial loan for your needs.
Commercial lending doesn’t have to be complicated. Contact F&M Bank and we will be glad to help answer your questions about getting started. Stop by one of our convenient locations to begin the small business loan process today.