Finding the correct type of small business financing for your specific professional and personal needs can be quite overwhelming and confusing. The internet presents business owners with a wide variety of financing options.
However, qualification requirements differ from option to option and depend on the type of financing you need. Each option involves certain costs that vary widely.
The best way to ascertain which type of business loan would work the best for your business is to compare the most popular business financing options. That includes everything from business credit cards and lines of credit to SBA loans, so you can make an informed decision for your business organization.
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Know your business financing options
There are many small business financing options that you can research to find a loan that works for you. However, you need to know what you want. Are you searching for short-term financing, or you’re more into getting a long-term loan?
Are you looking for cash within days, or do you need additional financing to buy real estate or refinance debt? Certain loans include limitations on how you can spend the funds, and many types of small business loans come with an array of turnaround times from application to payout.
Let’s quickly review some of the most common loan options for businesses before you start applying.
Traditional bank loans
Traditional bank loans are the most common go-to solution for businesses looking for finances due to their favorable loan terms and low rates. However, banks usually have high qualification requirements.
If you decide to inquire with your existing local bank, you should know that loan terms differ for online and brick-and-mortar banks regarding the time it takes to pay the loan back. Both solutions typically offer three types of term loans for businesses:
- Short-term loans
- Medium-term loans
- Long-term loans
The best way to find the best term loan for your needs is to discuss it with your bank to determine the amount of loan and monthly payment for your budget.
SBA loans are issued by the US Small Business Administration (SBA). These are financing options designed for small businesses to get financing for certain periods. The SBA doesn’t make loans but rather guarantees additional funds for businesses made by participating lenders.
SBA loans give you access to several options, including:
- SBA 7(a) loans
- SBA 504 loans
- SBA Express loans
- SBA microloans
Each option is different with specific terms and limitations and funds that you can use for specific purposes that can determine the type of SBA loan you need for your business. Choosing the right financing option is as important as choosing the right type of insurance for your needs.
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A business line of credit
A business line of credit gives you the flexibility of using a credit card with the benefit of having additional funds at your disposal. Like a credit card, the bank issues this type of loan and provides you with a set limit that you can borrow against, pay it back, and apply for it again if need be.
You get access to a revolving line of credit that you can borrow in the exact amount you need. However, the interest rate varies, and your eligibility depends on your business credit score or personal credit score.
Term loans are the best option for businesses that know the exact amount of funds they need to achieve a specific goal. A term loan gives you access to a lump sum that you can use over a specific repayment period. This lump sum is a fixed amount of funds with a varying repayment period.
SBA term loans typically involve a repayment period ranging from 2–25 years, while online loans come with a period of 6–24 months. However, the repayment period depends on the amount of the loan and the use of funds. Term loans also may carry either variable or fixed interest rates.
Commercial real estate loans
This type of business loan provides property financing as an excellent option for buying commercial real estate but comes with an array of additional expenses. These expenses range from title insurance, taxes, inspections, surveys, and fees to closing costs and the price of the property itself.
Even though commercial real estate loans can be huge, they require collateral. You can apply for this loan at attractive interest rates.
The types of loans we mentioned here are just the tip of the iceberg. There are many more financing options that you should consider before you decide to apply. Each loan offers different advantages and comes with its own disadvantages. Take your time to compare each option until you find the one that is most affordable and fitting for your needs.