Are you a small business owner looking to get a loan? You have many options. These days, the market is full of loan products designed to meet the needs of small business owners, so whether you’re looking to buy and renovate a new property, or need just cash to complete your business until your invoices are paid or your The busy season begins, you can find a loan that works for you.
There are three main types of business loans available: Small Business Administration (SBA) loans, traditional bank loans, and alternative loans. SBA loans are not issued by the SBA, but guaranteed by it, so that lenders feel more comfortable financing small businesses. Alternative loan products include merchant cash advances, invoice factoring loans, business credit cards, and business lines of credit.
Traditional bank loans are the hardest to get, but, like SBA loans, they offer lower interest rates and more favorable repayment terms. Learn more about what options you have so you can choose the best loan for your business.
Traditional Bank Loans
A traditional business loan from a bank is probably the first thing that comes to mind when you think of getting a business loan. Traditional bank loans offer the lowest interest rates, and often the best repayment terms – you can often pay off a conventional bank loan in years instead of months, such as You can do with many alternative loan options. However, repayment schedules are usually shorter with conventional loans than they are with SBA-backed loans. You should also be prepared to make a balloon payment at the end of the loan term.
Traditional bank loans are the most difficult for small businesses to obtain. You need to prove to the bank that your business is established and that it is profitable. You also need to convince the bank that the loan money will help you make the business more profitable so that you can repay the money. Just about 23 percent of conventional small business loan applications are fully approved.
SBA loans are supported by the Small Business Administration, but they are provided by regular lenders and nonprofits that aim to help small businesses. SBA backing provides an extra layer of financial security for lenders, so they can provide more of these loans. The SBA supports several different types of business loans, including microloans, 7(a) loans, CDC/504 loans, and disaster loans.
SBA microloans are small loans of no more than $50,000, available to new and established small businesses. You can use a microloan to buy inventory; machinery, tools, and equipment; tools and equipment; or things. You can also use the money as working capital to cover your day-to-day operating expenses while you wait for cash flow problems to be resolved.
7(a) loans is the SBA’s primary loan program, and therefore the most commonly offered loan. You can use the funds from a 7(a) loan to buy real estate or build new structures; purchase equipment, fixtures, furniture, appliances, and machinery; debt refinancing; start a new business; modify a building; or even as working capital. These loans typically have terms of 10 to 25 years, depending on what you’re borrowing the money for, and a maximum borrowing limit of $5 million.
CDC/504 loans are real estate loans that you can use to purchase buildings, land, or machinery. You can also use one to refinance debt you’ve incurred from growing your business in the past. You usually have to put down 10 percent to get one of these loans. The SBA will put up 40 percent, while your lender will put up the other 50 percent. These loans typically have terms of 10 to 20 years and a maximum borrowing limit of $5.5 million.
Disaster loans is available to small business owners who have had business assets and inventory damaged in a disaster. You can borrow up to $2 million to replace or repair machinery, equipment, inventory, and premises.
Because they require approval by a government agency, it can take several months for an SBA loan application to be approved. If you can wait, that’s fine. If not, you may want to consider an alternative lender – especially if you can’t qualify for a conventional loan.
Alternative Lending Options
Alternative lenders can provide business financing within hours or days. Applications are usually made online. Your options for alternative business loans include merchant cash advances, which allow you to borrow against your future credit card sales; invoice factoring, which allows you to borrow against your outstanding invoices; and a business line of credit, which allows you to borrow only as much as you need and only pay interest on the amount you borrow. Business credit cards can also provide working capital to help you manage your cash flow.
Alternative lenders will often lend to business owners with lower credit scores, so you can still get the financing you need with less-than-perfect credit. Interest rates tend to be higher for these loan products – interest rates of 25 percent or more are common for products like merchant cash advances. Repayment times tend to be short, as well — you may find yourself on a 90-day payment schedule instead of one that stretches out for years. However, you can usually pay off your cash advance or other alternative loan product with the money you earn during the repayment period.
Some alternative products, such as invoice factoring, may not even have to be paid – that’s because you sell your invoices to the lender at a fraction of their value, and the lender gets their money back by collecting the invoices themselves. invoice.
The best loan for your business depends on what you use it for, when you need it, and what you can qualify for. Find the best loan for you and watch your business grow.