Exploring Different Types of Business Loans

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Staggeringly, 99.9 percent of all businesses in America are small businesses. This is according to the Small Business Association (SBA), which also states that there are about 33 million small businesses in America. One of the reasons that there are so many small businesses in the business landscape is that there are a lot of lenders out there who are looking for their next opportunity to make a sound investment. If you harbor a dream of opening your own business, there are many ways that you could secure funding, by way of a small business loan.

Term Loans

If you are looking to get a business loan, the term loan is a popular means by which to do so. With this type of loan, the business borrows money from a traditional bank, credit union or online lender. Though the terms and conditions vary, a well-qualified business ought to be able to borrow up to $500,000, securing an APR of about 9 percent. It should also enjoy favorable repayment terms of up to 10 years and will be able to use the funds for a variety of purposes, including inventory, equipment or working capital.

It’s easier to get a competitive interest rate on a term loan if both the business and the owner can show good credit scores. You may, however, have to provide a legal personal guarantee that you will repay the loan with personal funds if the business fails to do so.

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SBA Loans

SBA loans are loans that are guaranteed by the federal government. Because the government agrees to repay up to 85 percent of the loan if a borrower defaults, it greatly reduces the risk for the lender. This is why it’s always important, if your initial loan application is rejected, that you inquire as to weather the lender would consider reviewing your materials again with SBA considerations.

Though each SBA-approved lender determines the annual percentage rate that it charges, interest rates typically range between 2.8 percent and 13 percent. Repayment terms could extend up to 25 years. Besides traditional bank loans, SBA loans are seen as one of the most affordable ways to secure financing. Borrowing requirements for SBA loans can be extensive and you’ll likely need a personal credit score of at least 680 to qualify. The loan process can take weeks or months to complete.

Startup Loans

These loans are ideal for businesses that cannot qualify for other types of loans because they haven’t been established for longer than one year. There are lots of options for financing a small business, including SBA microloans, online loans and business credit cards. Because of the variety, interest rates, fees, loan amounts and repayment terms can vary greatly.

Startup loans are often available to businesses with no established credit or time in business. A well-managed startup loan has the added bonus of helping build good business credit for future endeavors.

Short-term Loans

With a short-term loan, a business can typically borrow up to $500,000, securing APRs starting as low as eight percent. These loans are known for fast funding and relatively easy qualification terms.

Securing financing for your small business dream is critical. If you find the right lender, at the right time, and are in possession of a formidable business plan, you’ll likely find success. This is because, aside from the other hoops that you’ll be asked to jump through during the application process, a sound business plan should include most of the relevant information that lenders want to know before they commit. Before you start reaching out to potential lenders, then, make sure that when they take the time to meet with you, you have something dynamic for them to read.