Financing your business can be a challenge, and many types of business loans are available. It’s essential to know the benefits and drawbacks of every kind of business loan before deciding which one is best for your business. This blog post will go over the top business loans options: what kind they are, how they work, and when to consider them.
SBA loans are government-backed business loans that have been around for many years. The Small Business Administration (SBA) is a government organization that provides financing to small businesses.
There are two types of SBA loans: regular and Express loans. The standard SBA loan is for businesses that have been in business for at least a year and makes less than $19 million per year.
SBA loans are outstanding because they offer fixed rates, low-interest rates, and extended repayment plans (up to 25 years). The drawback is that these business loans require large down payments of 20% or more.
The express loan is for business owners who have not been in business for more than 90 days. This loan requires a down payment of only $100, and the rates are competitive with other business loans.
Business Lines of Credit
A business line of credit is similar to a personal line of credit, such as one from your bank account or home equity. The difference between a business line of credit and a personal line of credit is that the business line of credit is specifically for businesses.
The great thing about business lines of credit is that they are unsecured, meaning you don’t need to put up any collateral. This makes it a good option for small businesses that may not have enough assets to use as collateral. The drawback is that business lines of credit typically have higher interest rates than secured loans.
A term loan is a type of business loan where you borrow a set amount of money and repay it over a fixed period of time, usually three to five years. Term loans are outstanding for businesses that need a large amount of money for a specific purpose, such as buying new equipment or expanding their business.
The downside of term loans is that they have high-interest rates and require a sizeable down payment. They also usually have shorter repayment terms than business lines of credit.
Invoice financing is a type of business loan where you borrow money against your unpaid invoices. This type of business loan is excellent for businesses waiting to get paid for their products or services.
The drawback of invoice financing is that it typically has higher interest rates than other business loans. It can also be challenging to qualify for this type of business loan.
Merchant Cash Advances
You receive a lump sum of cash in advance, which you can use to fund your business.
Instead of paying a fixed payment per month from a bank account similar to a term loan, you spend on a merchant cash advance by deducting a percentage of your debit and credit card sales every day or by a fixed daily or weekly bank account withdrawal. Merchant cash advances are famous for fast delivery.
You can apply for around $5,000 – $200,000, and funding times can be as short as 24hours. This friendly convenience is not for free, and you will be paying a minimum of 18% interest rates. You can conveniently qualify for a merchant cash advance since the nature and terms of the loan reduce the risk for a lender.
There are business loans that are similar to Swiss Army Knives. They don’t give any specialized tools, but when you check them, you will discover they have several tools that can be used for numerous purposes. Startup loans and merchant cash advances are great options for this all-purpose financing. But precision can have value sometimes. Equipment loans are in this category. With up to $5,000,000 available, you can use them to buy any equipment that your business might essentially need.
This can be used for almost any property need, whether it is an office, a restaurant, a retail space, or a warehouse. If you’ve been conducting business for many decades and want to expand, that’s no issue. Is there a startup that wants to buy your first location? No problem. You can expect from $250,000 – $5,000,000 as available. It often has lower interest rates, starting at about 4.25%, with terms ranging from 20 to 25 years. These terms make it a cheaper type of financing that will save you a lot of money over the loan term.
Understandably, you have to start somewhere. If you can’t fit into any of the above, this is for you. The problem encountered by entrepreneurs is that small business loan types require a considerable business history to qualify. If you are setting up your business, you don’t have the revenue or requirements a lender may require. This is where a startup loan is helpful. This type of loan is specifically meant for new businesses and can provide from $500 to $750,000. You will get the money in just a few weeks. The interest rate depends majorly on the loan details so that you can look out for between 0 and 17%. The loan term is up to 25 years long.
Business Loans vs. Personal Loan
Getting business financing can be difficult, especially if you need a loan fast. There are many business loans available to businesses that do not have enough assets for collateral. Still, it’s important to note that business loans will typically have higher interest rates than personal loans (even unsecured ones).
Business loans also require collateral but will give you the amount of money needed faster. To decide which business loan is best for your business, it’s essential to consider the costs associated with each option before deciding.
Business Loan vs. Business Line of Credit: A business line of credit typically has a lower interest rate than a business loan, but it’s important to remember that business lines of credit are unsecured. This means you don’t need to put up any collateral for the loan.
Business Loan vs. Term Loan: A term loan is excellent for businesses that need a large amount of money for a specific purpose, such as expanding their business. Term loans typically have a higher interest rate than business lines of credit, but they also have shorter repayment terms.
Invoice Financing vs. Business Loan: Invoice financing is excellent for businesses waiting to get paid for their products or services. The drawback of invoice financing is that it typically has higher interest rates than business loans.
Business Loan vs. Personal Loan: A business loan will typically have a higher interest rate than a personal loan, even if the personal loan is unsecured. It’s important to remember that business loans are for businesses and not individuals. This means that you can use business loans to make business purchases and pay business expenses.
Need any of these Loans?
It is usually advantageous to consult an expert who can assess your financing needs and guide you to the best financing solutions. When you do your research, ask the right questions, and leave your mind open, you will be positioning your business for success.
JaScott is in partnership with private investors and companies to assist your business to grow. We have a list of 50 business lending programs that can help business owners gain the best loans and investment options. We have fantastic business mechanics, and we accommodate the needs of our customers.
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Are you confused about which of the loans above is suitable for you? In the next module, I will be discussing how to determine which type of business loan is right for you. Choose and apply for any of the business loans now!