There are many different types of loans out there that small businesses can apply for to get off the ground. There is sure to be a loan or line of credit that is perfect for every merchant, company, and financial situation, so it is best to research one’s options thoroughly. If a business owner takes into consideration how much money he or she needs and what it is needed for, he or she is sure to find the appropriate financing.
Here are five popular examples of small business loans to look into. Just remember that terms, rates, and whether one qualifies are all lender-dependent.
These lines of credit provide new businesses with funds up to the credit limit, though interest is expected to be paid only on the money that has been withdrawn. Fantastic credit scores and strong revenue are primary requirements.
These loans are known for their flexibility in terms and the fact that they are unsecured, or do not require proof of collateral in exchange for funds. They are typically used by seasonal companies with short term needs. As such, they are also helpful in the event of unexpected expenses or in times of short cash flow.
That said, business lines of credit may carry the supplemental costs of draw and maintenance fees.
Any business just starting off has probably dealt with the burden of stacks of unpaid customer invoices, some which may not be due for another 60 to 90 days. However, if a company is short on cash, it can get money immediately for these bills through a process called invoice factoring.
Instead of waiting it out, or dealing with delinquent companies, business owners can sell outstanding invoices to a factoring company. It will then be its responsibility to collect any monies due.
This is a great solution for businesses that have reliable customers and need cash quickly. However, while there is no strenuous approval process, the cost can get a bit steep.
A term loan is not unlike a student loan or personal loan in the way that the applicant gets a lump sum of money upfront, which he or she must repay over an agreed period with interest.
These types of loans are best for established businesses with solid credit that are looking to expand or rebrand. It may be difficult for a newer company to obtain this type of financing, though with the right amount of collateral, or a personal guarantee, it may be possible.
If it is probable, getting a term loan is usually best for businesses. Online lenders and financial institutions can offer up to a million dollars to invest in small companies and usually provide such funding quickly and without too much red tape.
With this method, a small business owner will be able to get the unsecured financing that he or she needs in a lump sum of cash. Collateral is not needed. This is a great resource for retail store owners that are unable to procure a loan, yet are also in desperate need of capital.
Basically, it works by withholding a percentage of debit and credit card sales each day in order to pay back the financing. Just realize, that not unlike payday loans and title loans, these loans may have as much as 300% interest. So, owners should proceed carefully. Also, frequent repayment may disrupt cash flow.
Banks and other lenders finance these loans that are then guaranteed by the Small Business Administration, or SBA. Interestingly, the repayment plans are determined by the manner in which the business owner plans to use the funds. That means he or she could have up to 25 years to repay a warehouse loan in Utah or the state where the loan was issued. Real estate purchases tend to hold the longest loan schedules working capital financing requires significantly quicker repayment plans.
It can take a while to qualify, due to the tedious application process and the need for pristine credit. However, if one gets approved, he or she can be approved for up to five million dollars, with low interest rates and generous repayment terms.
In conclusion, these are five methods of financing that are available for new business owners or small business owners looking to expand. While these are viable options, there are even more choices out there, and, with a little research, every entrepreneur is sure to find what is best for him or her.