How To Find a Small Business Loan That Fits Your Needs
January 9, 2020 | Last Updated on: July 21, 2022
January 9, 2020 | Last Updated on: July 21, 2022
One of the biggest issues that new business owners face is covering start-up costs. A start-up business loan is a financing option that can be used to meet the monetary needs of a new business.
Most current small business owners could use some additional working capital to invest in their firm, however, they donâ€™t know how many options are out there. Luckily, there are plenty of loans available specific to specific company size and what type of terms and length you are looking for. A recent report from Biz2Credit shows that large banksâ€™ small business loan approval hit an all-time high of 28% this October. With that being said, this is the best time to find a loan program from a small business lender that works best with your needs.
Term loans are traditional bank loans that are frequently utilized by small business owners. These types of loans are very flexible and can have many different applications within a business plan. One reason a business may seek out a term loan is to buy a fixed asset, such as a warehouse or manufacturing site or other key pieces of real estate, in order to operate.
Short-term loans are given in one lump sum and repaid in periodic, fixed amounts. These loans are excellent for business-to-consumer companies that need a quick sum of cash that isnâ€™t very large. The repayment period is what makes a short-term loan so â€˜short-termâ€™, this period is typically a few months to a maximum of a few years.
These are meant to be used for major long-term investments that will take a relatively long period of time to implement. The repayment period can range from 1 to 25 years. These loans also tend to come with lower interest rates, when compared to short-term loans, since they are paid over a longer period of time and require stronger credit.
A business line of credit gives any small business pre-approved access to a source of funds that can be drawn on at any time. This may be in the form of a business credit card which can be very useful for small businesses. However, this also puts the businessâ€™s line of credit in jeopardy if payments are delayed.
Revolving lines of credit allow you to borrow more money as soon as you make payments. Payments to your account allow your credit line to remain open and allows you to take out more money–so goes the â€˜revolvingâ€™ nature of this loan option. Revolving lines of credit are very helpful for small businesses with solid cash flow and positive annual revenue which allows them to pay off their debts quickly and essentially have a constant source of funding available
A non-revolving line of credit is a credit line that you can take out but cannot be renewed once itâ€™s paid off.
Invoice financing allows a business to finance itself with accounts receivable coming from their existing business. In this way, small businesses can borrow money against the receivables owed from customers. Invoice financing can help a small business free up cash flow in order to pay employees or suppliers and reinvest into growth-related activities faster than they otherwise would have been able to. This loan can provide up to 100% of the invoice value with an 8%-30% factor fee. The repayment period lasts as long as it takes for the borrower to pay the invoice and can be acquired in as little as one day.
Sometimes small business owners need to purchase new business assets as a response to new business or aging equipment. Equipment loans can be used to acquire or finance large pieces of equipment/machinery. The down payment is typically up to 20%, however, some lenders may not require a down payment. In this situation, the piece of equipment in question can be used as collateral for the loan. In this situation, it would also be wise to explore leasing options, especially if the piece of equipment has a short life-span or is updated with new versions frequently. These loans can match up to 100% of the equipment value, with 8% to 30% interest rates. The terms can last the estimated life of the equipment and can be acquired as soon as 48 hours.
A merchant cash advance is traditionally used for businesses whose primary source of revenue is from credit and debit card sales. A merchant cash advance is now being offered to other types of businesses promising an upfront amount of cash for the promise of a slice of future sales. Many lenders have fairly liberal qualifications for this type of loan. These loan amounts range from $2,500 to $250,000 A merchant cash advance does not have a fixed repayment term and are usually repaid through smaller, regular (daily, weekly, or bi-monthly) payments based on a percentage of proceeds.
The U.S. Small Business Administration Loans (SBA Loans) are low-cost loans offered by the SBA and their partners. These types of loans can be used for purposes such as additional working capital, equipment procurement, real estate procurement, or refinancing. These have a loan amount between $5 thousand and $5 million, with a typical loan term between 5 and 25 years. The interest rates for this loan start at around 7.75%. The most important factor for securing an SBA loan is credit score, these lenders like a business with a strong history of borrowing.
These loans come with either a fixed or variable interest rate which is typically adjusted quarterly. The SBA charges a guaranty fee for backing this loan, which can be paid by the lender or passed onto the borrower. The maximum loan amount is $350,000. The repayment period can be up to 10 years for working capital and equipment loans, and 25 years for commercial real estate loans.
These loans typically carry a fee at about 3% of the loan amount, which can be financed with the loan in some situations. Interest rates range from 5-6% annually. The payment terms are 10 and 20 years.
With this scenario, the eligibility for the loan is based on the borrower rather than the business itself. This is traditionally used by start-ups and entrepreneurs where their firms either donâ€™t exist yet, or are too new to have a great line of credit. However, these loans are challenging for borrowers with bad credit to obtain. These can sometimes be less expensive than a traditional business loan. However, this report directly to your personal credit history. The loan amounts here are about $35,000 which can be accessed as quickly as one business day. The loan term ranges from 3 to 5 years with interest rates from 5.99% up to 36%.
Microloans are traditionally used by small start-ups, entrepreneurs, or other businesses that only need a small number of funds. These loan amounts are about $50,000 or less. There are no fees associated with micro loans, however, there is typically a higher interest rate at about 8-13%. These can be repaid in monthly installments of up to 6 years
Unsecured business loans are commercial loans that are borrowed from alternative lenders that donâ€™t require collateral and are intended for businesses. These are the best loans for small businesses that donâ€™t have anything to offer in terms of collateral to put up against their borrowing. Because of the lack of collateral, unsecured business loans typically have higher interest rates. Additionally, the creditworthiness of unsecured loan borrowers is not scrutinized as much due to the high rates. These loans can be found through many businesses and online lenders. These loan amounts range from $10,000 to $100,000 and has fixed rates of around 5.75%. The loan term is 12 to 60 months.
A business acquisition loan is a borrowed amount of money that allows you to acquire new and existing businesses. Purchasing an existing business can help entrepreneurs avoid costly start-up fees and get to work right away doing what they do best. These loan amounts can range from $5,000 to $5,000,000 with a loan term of 10-25 years with a revolving option. These funds can become available within 30 days and possess an interest rate of about 5.5%.
Not all small business owners have the luxury of a good credit history, however, that should not deter you from seeking financing. In this case, it would be wise to seek out online lenders, which have more flexible terms than many brick-and-mortar banks. The following are the best loan options for those with less than great credit.
Short-Term Business Lines of Credit
Merchant Cash Advances
Unsecured Business Loans
Many entrepreneurs find themselves needing small business financing, and as a result, loan payments in 24 to 48 hours. The following have short loan application processes that can quickly put money into your businessesâ€™ bank account.
Short-Term Business Lines of Credit
Merchant Cash Advance
Business Line of Credit
Business Acquisition Loan
Some small businesses are fortunate enough to have a strong credit history and can work with more traditional lenders. Itâ€™s good to take advantage of these opportunities for additional funding in order to have the most cost-effective loan
Personal Loans for Business
Money is typically the number one roadblock to growth for new and small businesses. But, there are many viable options for loans that can meet the needs of almost all businesses. When looking for loan options, a small business needs to have a business plan in mind along with their immediate and long-term needs in order to select the best option. Understanding the time-line, credit history requirement, and type of financing that you need is important in order to determine the loan that you should choose. With the diverse set of loan options out there, thereâ€™s almost always one to meet your needs.