Are you looking for an influx of cash for your small business? The types of small business loans can be overwhelming. Term loans, unsecured business loans, microloans what do they all mean? We’ve broken down five common types of business loans, (with help from the folks at the nerdwallet), that small businesses can consider.
These are for a fixed period that could extend up to 25 years, and repayments are generally made monthly or quarterly. It’s a very common type of business financing. Pros include getting a large sum of cash quickly. But, you may need collateral or a personal guarantee.
For businesses that need a relatively small sum. Microloans are usually for less than $50,000 and are offered by non-profits. Often these loans include mentoring or consulting. There are strict eligibility requirements for these loans. Usually, they’re only available to startups, newer businesses, and businesses in disadvantaged communities. Fundera has a list of microlenders.
Business lines of credit
A business line of credit provides access to funds up to your credit limit, and you pay interest only on the money you’ve drawn. It can provide more flexibility than a term loan. Business lines of credit are a flexible way to borrow. They are typically unsecured, so no collateral is required. It’s best to use these for short-term financing needs, managing cash flow, or handling unexpected expenses.
Good news: These business loans are partially subsidized by the US government, which helps keep interest rates low. Bad news: Getting approved can be difficult because of eligibility rules. The Small Business Administration guarantees these loans, which are offered by banks and other lenders. Repayment periods on SBA loans depend on how you plan to use the money. They range from seven years for working capital to 10 years for buying equipment and 25 years for real estate purchases.
These are a good option for startups, as banks typically don’t lend to businesses with no operating history. Approval for these loans is based solely on your personal credit score, so you’ll need good credit to qualify. The upside to these loans is you can get money for a new business. The downsides include high borrowing costs and if you fail to repay it will hurt your personal credit.
I hope this explanation of the different types of loans available is helpful. Starting and running a successful business is one of the hardest, but also one of the most rewarding things I’ve done. I love sharing my expertise, so I’ve launched a new podcast. The Business Behind Small Business. In each episode, my co-host and I give advice on how to run a successful small business. So, be sure to listen, it’s available wherever you download your podcasts.