When you’re starting a business, you may need to borrow money. This can happen for various reasons, such as purchasing equipment or developing a new product.
There are several financing options available to help you get the job done. However, before applying for any loans, it’s essential to do your research and understand your options.
The first step is selecting the appropriate type of loan for your business. The type of loan best for you can be influenced by qualification requirements, loan purpose, and desired loan terms.
SBA Loans
SBA loans are business loans guaranteed by the Small Business Administration of the United States (SBA). The level of risk for the lender is decreased because the federal government promises to repay up to 85 percent of the loan amount for a defaulted loan. Depending on the loan program, repayment terms can last up to 25 years.
The following are three of the most common SBA loans:
– SBA 7(a) loans
SBA 7(a) loans can help you expand your business, obtain working capital, or purchase an existing business.
– SBA 504 loans
504 loans can assist your business in purchasing fixed assets such as equipment or real estate.
– SBA microloans
Microloans can assist your business in meeting its working capital requirements, purchasing inventory and supplies, or purchasing equipment.
Term Loans
A term loan is a loan that your company borrows from a traditional bank, online lender, or credit union. The funds are repaid over a specified period.
A qualified company may be able to:
– Take out a loan of at least $500,000.
– Obtain an APR that begins around 9 percent.
– Get up to ten-year repayment terms.
– Use the money at their discretion.
Short-Term Loans
Qualifying businesses may be able to obtain funding from some online lenders in as little as one day.
A well-qualified company may be able to find loan offers to:
– Get a loan of up to $500,000.
– Secure APRs as low as 8 percent.
– Receive repayment terms ranging from six to eighteen months.
Startup Loans
Before your company can qualify for certain business funding options, it needs to be in operation for at least a year. A startup business loan may be a good fit for new businesses that need to borrow money quickly.
Startup business financing is available in various forms, including SBA microloans, online loans, and business credit cards. Interest rates, loan amounts, fees, and repayment terms can all vary due to the wide range of options available.
Business Lines of Credit
A line of credit for businesses is a type of business financing that allows you to borrow money as required and pay interest solely on the amount borrowed. The issuing bank approves your credit limit, and as you utilize and repay the money you owe, you will be able to access that same credit line again during the draw period.
Microloans
Microloans are a type of financing that consists of small loan amounts with short repayment terms. Interest rates are generally low (or nonexistent in some cases), and qualification criteria are frequently less stringent than other business loans. Microlenders typically target underserved small business owners.
Working Capital Loans
Businesses that require assistance with day-to-day operations may require a working capital loan. Some traditional financial institutions and online lenders offer working capital loans. These short-term business loans can help seasonal businesses and others who need capital until revenue increases.
Invoice Financing
Your invoices are collateral in this business funding option, allowing you to secure a cash advance of up to 80 percent of the outstanding invoice value. You retain control over collecting from your customers with invoice financing. When your customers pay, you return the cash advance to the lender.
Merchant Cash Advances
A merchant cash advance (MCA) is another method of obtaining financing based on future revenue. When you apply for this type of funding, a merchant services company will look at your daily credit card sales and the amount you want to borrow. The company then decides how much money it will invest in advancing your business.
Equipment Financing
Equipment financing may be viable if your company requires funds to purchase equipment or machinery. The loan is secured by the equipment you buy. If the borrower defaults on loan repayment, the lender may repossess and resell the equipment to recoup some of its losses. APRs typically range from 8 percent to 30 percent, and loan amounts vary based on the cost of the equipment your company requires, among other factors.
