Options for Small Business Loans

These loans are provided to small business setup for various purposes. They have fewer requirements for enabling small businesses to secure funds. The loan programs are designed to help businesses that are not able to get finance from other resources. A business owner may need these loans for purposes including hiring staff, purchasing equipment or expanding businesses, etc.

Types of small business loans

Before signing up for a loan application, the person must have an authentic explanation about how he/she is going to repay the loan because the banks are usually hesitant to lend money without a justified cause.

Those in need of loans can choose from the following types:

Term loan

If a business needs money to buy equipment then a term loan is suitable. This loan is set to terms and has a preset interest rate, down payment, or collateral monthly payment options. Businesses have to complete a lot of documentation and provide planning details to satisfy banks for getting approval for term loans.

Lines of credit

This type of lending is done through the line of credit. In this, a bank can lend against the value of something in the business to help finance the operations. Lines of credit do not allow the use of the maximum of what is borrowed. 

Factoring 

In this type of lending, a factoring company buys business accounts’ receivable amount and plans to collect them in the future under normal terms.

Merchant cash advance

Through this loan, a lump sum amount is given for a promised percentage from the future sales.

Peer-to-Peer Lending 

It is a new platform that allows an owner to get a certain amount of money from group investors, in an online format usually.  

Working Capital Loans

These loans are utilized to pay for daily operations and to deal with temporary drops in profit. 

Small Business Administration Loans

It was created to help and encourage the growth of small business in the US. If a business is unable to qualify for loans via traditional banking systems, the SBA can help a business through one of their three loan programs.

The three types of programs for small businesses are:

  • Loan program
  • The microloan program 
  • The CDC/ 504 loan program

A loan program has a specific set of requirements and is designed to help in certain instances such as to set business in a rural area or to streamline the loan process while making enough to pay the workers.

The microloan program provides a small amount of loan to buy equipment. The amount cannot be used to purchase real estate. 

CDC program is a long term program designed to help a business acquire significant assets for growth.  

COVID -19’s impact on small business loans

Due to ongoing pandemic, many business setups have been closed while others are struggling. This situation has put businesses in the need of finance to get stable. SBA has two loan programs to help businesses that are impacted by the pandemic. These loan programs include the likes of:

  • Paycheck Protection Program 
  • Economic Injury Disaster Loan

Both programs have a low-interest rate and nearly all PPP loans may be forgiven if the borrower meets certain criteria.  

Choosing The Best Business Loan For A Small Business Loan:

According to https://www.nav.com/small-business-loans/, there are several guidelines for getting a loan. They are:

  • Qualification like credit score, time in business, revenues etc.
  • How quick the money is needed
  • The amount of money needed
  • The amount of interest.

Difference between a true business loan and SBA loan:

  • The SBA guarantees loans for start-up especially for businesses that need to be open for at least one year.
  • An SBA loan application requires financial documents and a business plan before application is submitted.
  • SBA lends a maximum of $5 million loan. The deck loan ranges from $5,000 -$250,000.
  • The SBA requires collateral about 20% down from the business owner.

Note About Term Lengths:

Short term loan lends money for a short period and the amount has to be paid within eighteen months.

Long term is suitable for long term investment in the business, it helps the owner to grow business.

Comparison between different types of small business loans financing option:

 Type of small business loan good for                                     

  • SBA loans is good for low-interest working capital
  • Traditional bank loans are versatile loans for any purpose          
  • Merchant Cash Advance gives quick access to capital
  • Business Lines of Credit gives access to funds when you need them   
  • Microloans are small loans and it varies
  • Cash flow loans give quick access to cash without great credit    
  • Alternative online loans fast turnaround time with less documentation 
  • Business Credit Cards Earning rewards to use on travel or cashback

Other loan options are:

Kabbage

It is an online lender that offers a business line of credit. The business owner can receive a loan on the same day and the amount varies from $2K to $100K.

Ondeck

Ondeck is a short term business loan product that allows owners to take loans readily for the obstacles they encounter within one day. The owners can borrow $5K to $500K. 

Credit cards

They are although fast and easy choices but not readily used. The ideal way to use them is to repay the fund within one month. Another advantage is that many of them offer an introductory 0% interest rate and the average APR for a credit card is 16%, lower than many other options.

Invoice financing

It can be a good option for B2B businesses with long invoice cycles. Invoice financing allows an owner to get paid immediately rather than waiting for the customers to pay back.

Business loans for bad credit owners

Businesses that are already facing bad credit reports have these choices:

Microlenders:

Microlenders help low-income small business owners to secure loans. These loans are available in a small amount such as $35,000

Kiva:

It offers owners 0% interest loans for up to $10,000

  • Blue vine
  • Credibly

Credibly offers two different options including a small business loan and merchants cash advance product. The small business loans range from $5k to $250k and it can be approved within 48 hours.

There are advantages and disadvantages of every type of small loan. It is wise to get knowledge about what kind of loan is suitable for a particular kind of business.

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