The different types of business loans that are available all have different qualification requirements, rates, and terms. Whether you are looking to buy equipment, real estate, inventory, or just need some quick working capital, there’s a type of business loan for your needs and preferences.
There are different types of business loans available to entrepreneurs:
- Bank term loans.
- Bank lines of credit.
- Equipment loans.
- Invoice financing.
- Purchase order financing.
- Personal loans for startups.
- Nonprofit business loans.
- Rollover for business startups.
- Hard money loans.
- SBA 7(a) loans
- SBA CDC/504 loans
- SBA Microloans
- Short-term loans
- Merchant cash advances
- Business credit cards
- Online term loans
- Online business lines of credit
One of the biggest factors that will impact your small business loan search is the length of time you’ve been in business. When you have been in business for many years, lenders feel a lot more confident about your business’s ability to weather ups and down. Additionally, you’ve had time to build up your credit, revenue, and profits, all of which are major factors in a loan application. Since you’ve proven your business’s longevity, you have a good chance of qualifying for the most desirable and affordable types of business loans.
Although the world of small business lending has expanded dramatically over the last decade or so, the cheapest capital you can find is still at a bank. That said, qualifying for a bank loan is pretty difficult. Large banks reject about 75% of small business applicants. It’s particularly hard to get a bank loan for small amounts of capital because these loans just aren’t profitable for the banks.
On top of this, the process can be very time-consuming. If you need cash fast, this may not be the best option. But if you can afford to wait, you should because a bank loan is the most affordable loan on the market, with business loan interest rates ranging from about 4% to 10%.
With a traditional bank term loan, you borrow a set amount of money upfront, and pay back the money, with interest, every month for a certain number of years. Bank terms loans tend to have large business loan amounts and long-terms.
Reasons why you might use a term loan include:
- Buying real estate
- Acquiring another business
- Investing in remodeling or renovating commercial space
- Planning long-term business expansion
Term loans are the definition of loans in most business owners’ eyes. However, they are difficult to qualify for. In addition to an established business, you should have strong credit and finances.
If you’re a younger business still working to build credit, revenue, and profits, you likely won’t be able to qualify for bank loan products. But you can still find some great business loans as equipment loans, invoice financing or personal loans for startups.
For all businesses, but especially for newer companies, the owner’s personal credit will come into play quite a bit. The stronger your credit, the better your chances of securing a loan. In addition, when you have a newer business, you need to think about what you can bring to the table for lenders. If you can put down business assets as collateral, that’s a great place to start. While getting an unsecured loan is what most people want, there’s no harm in using what you’ve already got to get a good deal.
There are more than a dozen types of business loans, and the right one for your business ultimately comes down to a number of factors.Each type of small business loan is designed for a different business need, which leaves most business owners wondering “how does a small business loan work?” And as you now know, there’s no simple answer to this question.
You’ll need to consider your credit, your business’s finances, the length of time you’ve been operating, and your reason for the loan before narrowing down your options. Once you do that, you should have just a handful of loans to apply to, and that will bring you one step closer to getting the capital you need to grow your business.