Are you starting a business and wondering where to get finances? Well, there are several types of small business loans that you can apply for and get a big boost for your business. But since many types exist, you have to be careful with your choice as not all will work for your business.
Come up with a solid plan and think about what you want to do with the money. Is it equipment purchase, supplies, inventory, or real estate? Once you have a solid plan, you can go through the following 11 popular types of small business loans and choose what suits you best.
1. Business Line of Credit
A business line of credit is a flexible startup loan that you can get within one to two weeks. The loans range from around $1,000 to $500,000 at an interest rate of 8-24%. The finances maturity is within a 1-2 year period.
This is a revolving line of credit that you can access as many times as you need. You can use it to purchase equipment, hire staff, pay suppliers, expand, or buy a business vehicle. You’ll only pay interest for the exact amount of money that you get to use.
2. Equipment Financing Small Business Loans
This small business loan is specifically designed for equipment and machinery purchases. They’re similar to conventional loans and have monthly repayment plans for a set period. The loans have rather strict lending terms because the equipment is used as collateral.
The bank will seize the equipment if you don’t pay your loan as agreed. You can also consider equipment leasing as another excellent alternative.
3. Small Business Administration (SBA) Loan
SBA loan is a long-term loan that comes with the most attractive terms and good interest rates. This is one of the best loans for small businesses but has stringent application requirements. You must have a solid credit history and good finances to lay your hands on the loan.
The loan repayment period lasts 5 to 25 years, and you can use it for any business purpose. The loan is backed by the government. Make sure you clearly define your business goals when applying for this goal.
4. Business Credit Card
This is another easily available business loan that you can get with minimum paperwork. As long as you have a business credit card, the funding for this type of loan rarely exceeds two weeks. It’s an excellent option for those who find it hard to secure a business loan.
The loan allows you to boost your working capital and access cash quite easily. The loan also comes with additional benefits like reward programs and an opportunity to build your credit. You can use the loan for anything related to your business.
5. SBA Microloans
SBA microloans come from approved intermediaries like community development financial institutions (CDFIs). This is a term loan that comes with a maximum term of 72 months. The average of the term goes for 40 months.
Your business can use the money as its working capital, inventory purchase, fixtures, and furniture, or buying business equipment. There are also many non-profit organizations offering these loans.
6. Business Term Loan
This loan works like any other traditional loan that you can get from banks. The loan comes with a repayment schedule and features fixed interest. Lenders will depend on the interest you pay to earn.
If you don’t repay your loan on the set date, you might have to part ways with a penalty fee. The loan period lasts one to five years and comes with monthly repayments. The loan has few restrictions with stringent application requirements.
7. Commercial Mortgage
A commercial mortgage is suitable for any business property need. It can be an office space, retail area, warehouse, or restaurant. The loan is suitable for businesses that need to expand and new businesses looking to purchase their first business premises.
You can use this loan to purchase a business location you’ve always desired, build your commercial premises, or expand. You can also use a commercial mortgage to refinance or secure a better interest rate.
8. Crowdfunding for Small Business Loans
There are many crowdfunding options that your business can use to raise money for starting a business. Different types of crowdfunding are available to startups, including debt, rewards, and equity.
To participate in crowdfunding, you’ll have to share your business goals and objectives. This will be your bid to convince as many people as possible to help fund your project. This can take time and require marketing efforts, but in the end, it’s very fruitful.
9. Merchant Cash Advance
While this is not technically considered a loan, it’s a kind of advance on your business sales. You’ll repay this as a cut on your credit card sales. This small business funding charges a ‘factor fee’ that’s a multiple of the advanced amount.
The cash advance goes in exchange for your daily sales plus fees. The loan is repaid daily and doesn’t need any collateral. You can use it for multiple business expenses and can be available even with bad credit.
10. Business Acquisition Loan
This loan is geared towards buying an existing business or franchise. If you get a good business available for purchase, you can get a good financing option to give you a boost. The interest rates for the loan are very favorable, and the loan term lasts 10 to 25 years.
This is a good financing option for those who want to jump-start their businesses. It offers an opportunity for you to jump straight to business without the hustle of growing it from scratch.
11. Personal Business Loan
A personal loan will not take your business revenue into account. But you need to have good personal credit to acquire the loan. The loan has a competitive interest rate than a business loan and should be repaid between 3 to 5 years.
This loan is suitable for new business owners with a strong personal credit score. It’s for those who can risk mixing their corporate and personal finances.
Choose Your Loan
There are endless options of small business loans that you can choose from as long as you have a solid plan. Make sure you carry out thorough research and find a reputable lender for your business loan. If you don’t know what suits your startup, you can also consult financial professionals to help you out.
We’re also here to help you every step of the way as you make tough business decisions. We have other helpful blog posts on this site that you can use to see your business grow.