Are you a small business owner looking for a loan? You have many options. These days, the market is flooded with loan products designed to meet the needs of small business owners. busy season begins, you can find a loan that will work for you.
There are three main types of business loans: Small Business Administration (SBA) loans, traditional bank loans, and alternative loans. SBA loans are not made by the SBA, but are guaranteed by the SBA to make lenders feel more comfortable with small business financing. Alternative credit products include trade cash advances, invoice factoring loans, business credit cards and business lines of credit.
Traditional bank loans are the most difficult, but like SBA loans, they offer lower interest rates and more favorable repayment terms. Learn more about your options 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 about getting a business loan. Traditional bank loans offer the lowest interest rates and, as a rule, the best repayment terms; you can often pay off a traditional bank loan over months rather than years, as you can with many alternative loan options. However, repayment schedules are usually shorter with conventional loans than 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. You need to prove to the bank that your business is established and profitable. You also need to convince the bank that the loan amount will help you make the business even more profitable so that you can afford to repay the money. Only about 23 percent of typical small business loan applications are ultimately approved.
SBA loans are made by the Small Business Administration, but they are made by conventional lenders and non-profit organizations focused on helping small businesses. SBA support provides an extra layer of financial security for lenders so they can afford to make 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 loans of no more than $50,000 available to new and established small businesses. You can use a microcredit to buy supplies; machinery, tools and equipment; appliances and furniture; or supplies. You can even use the money as working capital to cover your day-to-day operating expenses while you wait for cash flow issues to be resolved.
7(a) loans are the SBA’s primary loan program and are therefore its most frequently made loan. You can use the funds from a 7(a) loan to buy real estate or build new structures; buy equipment, fixtures, furniture, tools and machinery; refinance the debt; start a new business; repair the building; or even as working capital. These loans typically have a term of 10 to 25 years, depending on what you borrowed the money for, and the maximum loan limit is $5 million.
CDC/504 loans are real estate loans that you can use to buy buildings, land, or cars. You can also use one to refinance debt you previously incurred from growing your business. You’ll usually have to pay 10 percent to get one of these loans. The SBA will contribute 40 percent, while your lender will contribute the remaining 50 percent. These loans typically have a term of 10 to 20 years and a maximum loan limit of $5.5 million.
Disaster loans are available to small business owners who have had business assets and inventory damaged by a disaster. You can borrow up to $2 million to replace or repair machinery, equipment, inventory and premises.
Because they require approval from a government agency, an SBA loan application can take months to be approved. If you can afford to 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 alternative business loan options include merchant cash advances, which allow you to borrow against your future credit card sales; invoice factoring, which allows you to borrow money against your outstanding invoices; and a business line of credit, which allows you to borrow only as much as you need and pay interest only on the amount you owe. Business credit cards can also provide working capital to help you manage your cash flow.
Alternative lenders 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 not uncommon for products such as merchant cash advances. Maturities also tend to be short. you may end up on a 90-day repayment schedule rather than one that stretches out over years. However, you can usually pay back your cash advance or other alternative loan product using the money you will earn during the repayment period.
Some alternative products, such as invoice factoring, may not require repayment at all, this is because you sell your invoices to the lender for a fraction of their value and the lender gets their money back by collecting on their account. invoices.
The best loan for your business will depend 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 thrive.