If you're a small business owner and need to borrow money to grow your company, many options are out there. You can choose from bank loans and lines of credit or consider other non-bank lenders that specialize in helping small businesses. This article will help you understand some of the different types of loans available to small business owners.
SBA loans are for small businesses that typically cannot get traditional bank loans. These loans are intended for businesses with less than 500 employees. The SBA provides guarantees on these loans, so they can be a good option if your credit score falls below the bank's credit requirement or if you don't have the right collateral to get a regular bank loan.
However, there are some drawbacks to the program:
Term loans are typically for a shorter term, ranging from one year to 10 years. The interest rate on term loans is generally fixed (Doesn't Change), and the terms are determined by your bank or credit union. You can borrow between $5,000 and $500,000 with this type of loan.
A line of credit is a loan that you can draw from and repay as you need. It's an excellent option for small businesses that need to borrow money for ongoing expenses, such as inventory or payroll.
Here's an example of how a line of credit can help your small business:
You're not sure how much money your business will need during the following year, but know it will be more than what you currently have in the bank. A line of credit lets you borrow up to a set amount (the "credit limit") at any time without having to reapply or submit additional paperwork every time money is needed. As long as there's enough of an available balance in your account, lenders won't raise questions about what spending needs are being managed through this type. This flexibility allows owners to focus on growing their business instead of dealing with tedious paperwork when they run low on funds or want more capital before getting paid back by customers due to longer-than-usual payment cycles in their industry.
Merchant cash advances, also known as MCA loans, are short-term business loans that allow you to borrow money against future credit card sales. If your business is struggling with funding or has high expenses but low revenues, an MCA could be the perfect way for you to get an infusion of cash without having to wait for months before getting paid
Here's how it works: A merchant cash advance lender gives you a lump sum upfront in exchange for an agreement that they'll be paid back according to how much money your business makes in credit card transactions over a period of time.
Commercial real estate loans are utilized to buy, build or improve commercial property. This includes land and buildings that are used for business purposes. You might also use it to refinance an existing loan on a piece of commercial real estate.Here are two use cases for Commercial Real Estate Loans;
Equipment financing is a short-term loan for purchasing business equipment. It's helpful for businesses that need to purchase equipment but don't have the cash on hand or can't get an unsecured business loan since they don't have that much collateral. Equipment financing is used to buy anything from computers and office furniture to manufacturing machinery and, through some lenders, vehicles for the business.
When considering equipment financing, keep in mind that it will involve monthly payments until the end of your agreement (typically five years). Depending on the agreement you choose, you'll also need to pay additional fees such as interest rates, taxes, insurance premiums, and maintenance costs.
Before you decide on a loan type, consider several things. First, you should understand the different types of loans available and how they compare. Then, once you know what kind of loan options are available and how they work, it's valuable to determine whether that specific lender is a right for your business.
These loans aren't the only sources of capital out there, but they are some of the most common. As you continue to work towards reaching your goals as a small business owner, remember that it can be tough to get working capital—so try not to take rejection personally! Instead, use each denial or delay as an opportunity to learn more about how lenders make decisions and what you can do differently with future applications.