Which of the following types of enterprise would most likely qualify and secure a large business loan of $1M – $10M? ? I advice you read on to find out.
Most businesses at some point in their life cycle would need capital or funding for a variety of reasons. For some of these businesses, a small amount of capital just isn’t enough to make a key difference in their business. Whether you are a small business or a larger one, sometimes you need a lot of external capital to move and direct the future of your company.
What Type of Businesses Qualify for a Large Business Loan?
At that point, you might be wondering whether there are large business loans out there for small and medium – sized businesses and whether you might qualify for one.
Businesses that frequently qualify for large business loans have been in operation for years and have well – established track records. Note that the longer you have been in business, the less risky of a customer you seem to be, especially if you have a positive business history to show for it.
On the other side, smaller and newer businesses pose a greater risk and are therefore less likely to get funding. Given the high failure rate of new businesses; lenders will be hesitant to extend a large business loan that would be repaid over a multi – year term.
Although having poor credit increases an individual’s chances of being denied financing, the legal structure or business enterprise structure you choose can also decide if you qualify or not. For business owners, your structure type might seem like a complicated and, frankly, boring topic to think about.
But if you are looking for business financing (large business loans), your business enterprise structure could matter more than you think. The enterprise you chose for your business can influence lenders when they are processing your loan application—and can have a damaging effect on your business and personal finance if you get funded.
Types of Enterprises That Would Be Most Likely to Secure a Large Business Loan
First and foremost, you have to understand that liability simply represents how much you are responsible for—and once it comes to your business, you can either be fully personally liable or not. Note that being personally liable for your business can be drastic.
For instance, if you are running a business yourself, you take out a loan, and default, the lender can go after your personal assets in order to recover its losses. It simply means that you are putting your personal life on the line for the health of your business.
Once you lose one, you lose both! Howbeit, it doesn’t entail that the business enterprise that assumes a lot of personal liability is bad. In fact, sometimes they are the best options for your business. Below are the different business enterprise types and how they can impact your large business loan application.
Enterprise Without Much Protection (Sole Proprietorships & General Partnerships)
These two enterprise types are easier to setup, easy to manage, and straightforward to understand. They are very popular too since over 70% of businesses in the united states are sole proprietorships, while over 3.3 million small businesses are general partnerships. A sole proprietorship is a single person who owns and is responsible for the business, while a general partnership is two or more at the helm.
Although there isn’t much regulation—partnerships are simply governed by Partnership Agreements that each partner helps create—but these enterprise types give you a lot of flexibility. You can run the business how you want. However, the owners of sole proprietorships and general partnerships have full liability for the debts and obligations of their business.
According to experts, business lenders might avoid these enterprise types because of the “perceived lack of credibility” associated with them. The sole proprietorship owners have unlimited liability, which means their personal assets will be used to pay back a loan if the business cannot.
While all owners in a general partnership have joint and individual liability: every owner is responsible for the entire business, not just their fraction. Some big money lenders, especially traditional banks, might see this as a risky situation, since those assets are harder to seize in case of a default.
Enterprise With Protection (Limited Liability Corporations, C – corporations, and S – corporations)
Notably, these enterprise types exist especially to protect their owners’ personal assets—as a result, they are often more complicated and expensive. C – corporations and S – corporations are regarded as individual entities under the law: they can enter contracts, pay taxes, and live on even after all of their founders have left.
The corporation can be owned by an unlimited amount of shareholders, like a C – corporation, or only 100 individuals, like an S – corporation, all owners have their personal assets protected in case of defaults.
Note that when you incorporate your business, you are protecting personal assets from the business. Big moneylenders prefer that your business shoulders the burden of a loan without personal finances interfering—and they also appreciate the credibility of a corporation or LLC.
Especially since personal assets become protected against seizure if your business defaults on a loan. Although there are a few times your limited liability can disappear, like when lenders pierce the corporate veil to show you have committed fraud, but howbeit, these are the enterprise types that large money lenders prefer.
When that time comes for your business to expand, purchase new equipment, or to commission a larger – than – usual order, you might find yourself in need of a large amount of money that you don’t have. That is where a large business loan would come into play.
Some of these large business loans can be difficult for some business owners to get, especially with a business enterprise type that lacks protection. However, although your enterprise type can definitely have an effect on your loan application, it is not the only or even the most important factor to worry about.