From long-term, low-interest-rate loans to quick cash you can secure with shaky credit, learn about five popular ways to fund your small business and find a small business loan that is best suited for your needs.
Finding a small business loan that suits your specific needs — and you can realistically qualify for — can be a tricky prospect.
The best type of loan for your business depends on several factors, including how long you’ve been in business, what you’re going to use the funds for, if you have collateral, and how healthy your credit is, to name a few.
Learn about five popular options that may be available to your small business, depending upon your specific situation.
When you think of a traditional bank loan, you’re likely thinking of a term loan. Issued by a bank, these loans have fixed interest rates and are paid back via monthly or quarterly payments made over a defined period of time.
If you’re a well-established business with excellent credit and solid financials, this may be the most favorable loan you can get. Term loans tend to have the lowest interest rates, and you can borrow a large amount of capital.
However, they can also be difficult to qualify for, and you can expect an in-depth application process — something to keep in mind if you need cash in a hurry. Term loans also generally require collateral.
Business Line of Credit
The difference between a term loan and a business line of credit boils down to flexibility. With a line of credit, you use it when you need it (up to a set limit) and only pay interest on what you use. You have the freedom to draw from your line of credit whenever you need to.
Lines of credit can provide the security of a cash cushion for your business, which can be especially helpful if your cash flow tends to fluctuate or you frequently face unexpected expenses.
A business line of credit may be fixed or revolving. The latter works a bit like a credit card combined with a cash advance. Once you repay what you’ve borrowed, your line of credit resets and you may borrow up to your limit again. A fixed line of credit doesn’t reset once you’ve used it.
Like term loans, lines of credit can be difficult to qualify for, though you’ll have a good chance if you’re an established business with excellent credit.
Does your business need a new printer? A delivery van? Perhaps you’re starting a food truck? Equipment loans are worth considering, as they can help you purchase both new and used equipment.
The beauty of an equipment loan is that the equipment itself serves as collateral. Unlike many other types of loans, it generally makes no difference if you’re a brand new business. If something happens and you can’t repay the loan, the lender is entitled to the equipment itself.
If you’re in the business of invoicing customers, you’ve likely encountered some cash flow issues caused by late payments. Invoice financing allows you to borrow money against the amount of money you’re owed, so you can get the cash immediately — without having to wait for your clients to pay up.
Borrowing against your unpaid invoices can be as simple as a click and you get funds fast, which can help you avoid cash flow dips that may make it difficult to pay your vendors or even your employees.
Like equipment loans, invoice financing is also less difficult for new businesses to qualify for. Is your credit less than stellar? We’ve got good news: The credit of your customers matters more than your own with this type of loan.
The Small Business Administration helps businesses that may have difficulty qualifying for a term loan by teaming up with banks to guarantee part of the loan. This win-win situation reduces the risk for banks and allows more businesses to qualify for low-interest-rate loans.
While SBA loans are open to new businesses, long repayment terms and low interest rates mean that they’re highly competitive. There are several types of SBA loans. The most popular is the SBA 7(a) loan, a flexible loan up to $5 million that small businesses can use for nearly any business purpose.
If you need funds for commercial real estate, to renovate your business or for equipment, consider a SBA CDC / 504 loan. In this program, a bank funds up to 50 percent of the loan while a nonprofit certified development company (CDC) covers up to 40 percent (you’re responsible for the final 10 percent of project costs). In order to qualify, you’ll need to occupy at lease 51 percent of the space you’re funding.
If you want to borrow $50,000 or less, the SBA’s Microloan program may be for you. For this type of loan, the SBA partners with community-based non-profit lenders to offer smaller loans. The average Microloan is for around $13,000 and has terms up to six years.
Streamline Your Efforts
Don’t let the variety of loan options out there overwhelm you. Online tools like FINSYNC simplify the loan application process by connecting you with a diverse lending network that offers a variety of loan types — via one simple application. Simply tell us the purpose of the loan and what type of collateral you have (if any), and we’ll do the rest.