Are you interested in a loan for your small business, but don’t know where to start? There are many different types of loans for your small business, such as credit cards, invoicing, and cash advances. The loan you choose will depend on what you need the loan for, and when you need the loan.
Here are the most popular types of business loans for small businesses, regardless of the industry you work in — from starting a photography company to opening up your own hotel, you can’t go wrong with these loans. Please keep in mind that the loan terms, qualifications, and rates will vary depending on the lender.
Term Loans
What is a term loan?
A term loan is a business financing loan. You receive a large amount of cash right away and pay it, along with interest, over a predetermined period. Some online lenders offer up to $1 million and provide you with the funds within a faster time period than many banks.
What are the pros of term loans?
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- Receive cash immediately for your small business
- Normally allow you to borrow more funds than other loans and banks
- Receiving the funds is quicker if you use an online lender. Online lenders typically take 1-2 days, while banks take weeks to months.
What are the cons of term loans?
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- Term loans may require you to guarantee an asset or business equipment as collateral that the lender can sell if payments are not made
- Interest rates are normally higher than traditional bank loans
What type of businesses are term loans best for?
Term loans are best for businesses that are interested in growing as soon as possible, and business owners that have a good credit line and a stable business they are sure will succeed with more funds.
SBA Loans
What is an SBA Loan?
An SBA loan is a loan administered by The Small Business Administration. Loans are offered by banks and lenders and typically offer longer repayment periods, depending on the industry you work in. The repayment period is normally between 7-25 years.
What are the pros of an SBA loan?
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- Low rates
- You can borrow up to $5 million
- Longer repayment period
What are the cons of SBA loans?
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- SBA loans are hard to qualify for
- The application process is long and tedious
What type of businesses are SBA loans best for?
SBA loans are best for businesses that would like to expand or refinance their existing debts. Additionally, those who are proficient as credit card holders and who are open to waiting a long period of time for their loan would be best for the SBA loan.
Business Lines of Credit
What is a business line of credit?
A business line of credit is funds that you have access to with a credit card. You pay interest only on the money that you have withdrawn with that credit card.
What are the pros of a business line of credit?
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- Flexibility
- Normally, there isn’t a required collateral
What types of businesses are business lines of credit best for?
Business lines of credit are best for businesses that operate only during a specific season, and businesses that have short-term financing needs, are managing cash flow, or have been hit with unexpected expenses.
Equipment loans
What is an equipment loan?
An equipment loan is a loan that will help you buy equipment for your business, such as a semi-truck, or welding machine. The loan’s term usually matches that of the expected life span of the equipment that was bought. Furhtemroe, the equipment normally serves as collateral for the equipment loans. For this reason, rates will vary.
What are the pros of an equipment loan?
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- You own the equipment you purchased and buy equity in it
- If your line of credit and businesses expenses are stable, you will get competitive rates
What are the cons of equipment loans?
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- They may require a down payment
- Finances might last longer than the equipment
What types of businesses are equipment loans best for?
Equipment loans are best for businesses that want to buy equipment and own it themselves.
Invoice factoring
What is invoice factoring?
If you are a business that uses an invoice payment method, you have learned that customers and clients will wait until the last day to pay their bills. Invoice factoring allows you to receive the money they owe you as soon as possible. Essentially, an invoice factoring company buys the invoices off of your business, and clients and customers pay them.
What are the pros of invoice factoring?
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- Get paid right away
- It is easier to get approved for invoice factoring, unlike getting accepted for a loan
What are the cons of invoice factoring?
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- It can be costly
- You lose access to the invoices
What types of businesses is invoice factoring best for?
Invoice factoring is best for businesses that have unpaid invoices and need the cash as soon as possible and businesses that have reliable customers that will pay the invoicing factoring company.
Invoice Financing
What is invoice financing?
Invoice financing is when you use your unpaid invoices as collateral to get a cash advance.
What are the pros of invoice financing?
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- Get cash fast
- Customers do not need to be notified about their invoice being financed
What are the cons of invoice financing?
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- Can be costly
- You still need to collect the invoice payment
What types of businesses is invoice financing best for?
Invoice financing is best for businesses that want cash quickly and businesses that still want control over invoices.
Merchant Cash Advance
What is a merchant cash advance?
A merchant cash advance is when you get a large amount of cash to finance your business. With a merchant cash advance, you may payments by withholding a percentage of your daily credit and debit sales or by daily or weekly withdrawals from a bank account.
What are the pros of a merchant cash advance?
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- Immediate cash
- Unsecured financing
What are the cons of a merchant cash advance?
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- High borrowing costs
- Frequent payments lead to cash flow issues
What types of businesses are merchant cash advances best for?
Merchant cash advances are best for businesses that have large and frequent credit card sales and businesses that can’t find business financing elsewhere.
Personal Loan
What is a personal loan?
A personal loan is for startup businesses and requires credit score approval.
What are the pros of personal loans?
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- Start-up companies and new businesses can qualify
- Receive funds fast
What are the cons of personal loans?
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- High borrowing costs
- Low borrowing amounts
- If you fail to pay, your credit score will decline
What types of businesses are personal loans best for?
Personal loans are best for new businesses and those who understand how credit score works to avoid damaging their credit score.
Business credit cards
What is a business credit card?
A business credit card is a line of credit made specifically for businesses. Withdrawal and pay the card as needed. Ensure you are paying the minimum monthly payments and do not exceed its limit.
What are the pros of a business credit card?
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- Earn rewards and points
- No collateral is required
What are the cons of a business credit card?
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- High cost with rates that are expected to rise
- May have extra fees
What types of businesses are business credit cards best for?
Business credit cards are best for business owners that have ongoing expenses.
Microloan
What is a microloan?
A microloan is a small loan, typically no more than $50,000. They are offered by nonprofit organizations and mission-based lenders.
What are the pros of microloans?
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- Low cost
- Consulting and training may come with the loan
What are the cons of microloans?
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- Small loan amounts
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- You might need to meet stringent eligibility requirements
What types of businesses are microloans best for?
Microloans are best for startup businesses that are at a disadvantage and businesses that only need a small number of funds