Which One is Right for You? 10 Types of Business Loans for Your Small Business

Types of business loans

One of the biggest concerns for someone opening a business is how will I finance my endeavor. As of 2016, the number of small businesses opening each year was around 400,000. Sadly, just as many close each year.

Without adequate financing options, small businesses fail to thrive. Many people invest their personal funds to start businesses. Some going so far as to pull the equity from their homes.

Many never think to research the types of business loans available to them.

In service industries such as construction, the business owner covers the costs of materials and labor. They are then at the mercy of the client to pay their invoices in a timely manner. Late or non-payment can significantly impact the ability to start their next project.

Having access to capital is crucial to a business owner’s success. Continue reading for 11 types of loans available to small business owners.

Small Business Administration (SBA) Offers Several Types of Business Loans

Small Business Loans are designed to provide working capital to businesses that are able to meet their guidelines. If you are a business that has been in operation for five or more years and can provide documentation and tax returns, you may qualify.

Here’s a couple of loans offered through the SBA.

1. 7(a) Loans

A 7(a) business loan is a popular loan offered through the SBA. They are provided through partner lenders to help more small businesses.

The loan is geared towards borrowers that cannot meet the stringent guidelines of a typical SBA loan. They are also designed to help the business owner build a long-lasting partnership with the bank that services the loan.

This is a great business loan for start-up businesses.

2. CDC/504 Loans

If you are a small business operating in a community development zone, the CDC/504 small business loan is what you should be looking at. These loans can be repaid over a longer period. They also can be used to buy property located within a CDC zone.

The loan comes with a fixed rate making it easier to handle the repayment for large business assets. Because it is a long-term loan, your payments will be smaller.

Here are Non-SBA Loans to Consider:

3. Borrow from Private Investors

A private investor can be someone you know or a complete stranger. There are also various online platforms that bring small businesses and investors together for the purpose of lending money.

You will need to be careful going this route as the same regulations bankers adhere to are not in place. Make sure you fully understand the terms of the deal.

4. Apply for Business Credit Cards

Having a decent credit score means you may qualify for business credit cards to fund your business. Establishing business credit is also a precursor to qualifying for SBA business loans.

The goal is to pay your purchases off as soon as possible. These cards are also a benefit if you need a large sum of cash. Doing cash withdrawals from a credit card comes with fees and higher interest rates so use that option sparingly.

5. A Business Line of Credit

A line of credit is a loan that you only use when you need funds. As a business owner, you will go through the regular loan process. The lender will let you know how much you qualify for.

You will not be obligated to take the full amount. If you are approved for $50,000 but only need $10,000, you take the lesser amount. Your monthly payment will be based on the amount withdrawn.

6. Accounts Receivable Loans

Are your money problems due to slow paying clients? If you’re having trouble starting your next project because your money is tied up in past jobs, here is a business loan to get you short-term cash.

For this loan, you will need to show that you have money outstanding from your clients. The lender will loan you the money contingent on being paid when those outstanding invoices are settled.

7. Equipment Loans

An equipment loan is a loan used specifically for purchasing equipment for your business. These loans can be issued by the company you are purchasing the item from. They can also be initiated from a bank.

The primary benefit of this type of loan is to keep the business from having to use cash-on-hand for major purchases.

8. Take out a Personal Loan

If you have a good credit score and a good history with your bank it may be easy to secure a personal loan. These loans are based on your personal credit history and may or may not require collateral.

Personal loans typically have repayment periods that can last as long as five years.

9. Short-Term Business Loan

Also known as a working capital loan, these loans can be used at the business owners discretion. They get the money in your hands quicker than most traditional loans.

The term short-term means that you will need to repay these business loans quickly. The average loan has terms that do not extend beyond one year.

10.  Rollover for Business Startups (ROBS)

A ROBS business loan will require the help of an expert. What you’re doing with this loan is starting a company and then setting up a 401K for the business.  You would then roll over money from an existing 401K into the business plan.

You will need to have an existing 401K with a minimum balance of $50,000.00.

What Can We do for You?

Now that you know the types of business loans it’s time to speak with someone to determine which one is best for your situation. Businesses have numerous needs and the right loan will help you focus on growth.

If you’re ready to get started, apply online today.