Did you know that more than 627,000 new businesses are launched every single year in the U.S.? Rest assured, not all of these new business owners will have a considerable amount of unused funds that they can use.
The majority will reach out for the best businesses loans that they can get their hands on. You might be a small business owner who’s looking for the best business loan for your needs. But, here comes the tricky part of the equation.
Exactly which one of the many types of business loans will you apply for? After all, each one has its advantages and disadvantages.
This depends on when you need the money and for what purpose it is being used. Keep on reading for our full breakdown of the main types of business loans on the market and what makes each of them unique.
Types of Business Loans 101: The Business Line of Credit
We can’t really discuss small business loans without highlighting the beauty of a business line of credit.
When flexibility is a priority, consider a business line of credit. The rates range from 8-24 percent, and the financing typically comes with a 1-2 year duration. You might expect to get anything from $1,000 to $500,000 within a week or two of applying.
A company line of credit is revolving, so you may access the money as many times as necessary rather than getting a flat payment. It’s not a must, but it’s always there if you need it.
Whether you’re using it to acquire equipment, add inventory, employ staff, expand to a new site, pay bills, or add a car to your fleet, you’ll only pay interest on the precise amount of money you use.
It isn’t challenging to get a business line of credit from a bank. Consider yourself a strong contender if you’ve been in the company for more than six months, have annual revenue of $50,000 or more, and have a credit score of 560 or higher.
Think of the Small Business Administration (SBA) as your government buddy. This government agency’s primary mission is to assist small companies in locating the financial support and resources they need. In particular, the SBA aids disadvantaged firms and would not be able to seek assistance otherwise.
With an SBA loan, you may get anything from $50,000 to $5 million. Terms also encompass a vast range, often from 10-25 years. One negative of SBA loans is they’re renowned for being delayed and paperwork-intensive.
For example, if you apply in early July, you frequently won’t receive the cash until August or September. Certain situations might go as far as October.
Because the organization mentioned above isn’t the actual lender, SBA loans are particular. Instead, it protects other lenders by guaranteeing a large percentage of each loan, making them more inclined to accept your request.
Like an SBA Express Loan, a short-term loan has a lot more oomph. You can receive a loan in the time it takes to binge-watch a full season of your favorite TV show.
Because they’re built for speed, the amounts for these loans only go up to around $500,000. This loan must be repaid swiftly, generally within one to three years. The interest rates may be fairly favorable, starting as low as 8 percent.
For instance, many businesses employ short-term loans when they require immediate answers to urgent problems. You may use a short-term loan to pay for unforeseen expenditures, recruit new employees, whether a sales slowdown, repair damaged equipment, or seize a promising business opportunity.
Moreover, you can always take advantage of fix-and-flip loans with short-term financing and other subspecialty loans under the umbrella of short-term loans.
Business Term Loan
A business term loan is a terrific method to get the operating capital you need, grow your operations, buy equipment, hire more employees, or do whatever else your firm requires.
Entrepreneurs have been using this form of finance for decades. If loans were automobiles, they would be the Toyota Corolla. They aren’t the most eye-catching loan on the market. This product has been a top seller for decades and has a good reputation. The loan sums vary from $5,000 up to $2 million, and you can typically see that money in your account in only a few days.
Merchant Cash Advance
You borrow against your future profits with a merchant cash advance to get the capital you need. You will repay your loan by deducting an agreed-upon percentage of each daily credit card deposit from your checking or savings account until it is fully repaid.
You may utilize your advance for many reasons. Therefore, this sort of funding has acquired a reputation among businesses for being incredibly flexible.
Like short-term loans, merchant cash advances are noted for rapid delivery. You may apply for anything from $5,000 to $200,000, and time to money might be as fast as 24 hours. This sort of convenience comes at a premium charge, and you should anticipate the interest rates to start around 18 percent.
Business Credit Card
When it comes to small company financing options, the business credit card is the easiest to understand. Using a personal credit card gives you a good idea of how things function.
You may access funds up to $500,000 with a corporate credit card, with 8-24 percent interest rates. Compared to other types of loans, this one requires a lot less paperwork and disburses money in as little as two weeks. It’s not rare to obtain a 0 percent introductory rate.
People who don’t want to apply for a business loan or have been turned down for one in the past can benefit significantly from this choice. You’ll enhance your working capital with rapid access to cash, plus enjoy the extra advantages of using a card rewards program and building your credit.
Funding Business Ownership: Simplified
While brainstorming for your perfect business plan, most of us aren’t prepared for how expensive funding your new ideas can be.
Now, funding your business from the ground up is within reach. We hope that our guide has shed some light on the types of business loans available to you. And, if you liked reading our article, head straight to our business section for additional tips and strategies.