Whether you’re fresh out of college or taking a chance on a new opportunity, those looking to start up a small business might be looking for some financial assistance. While this article is far from a comprehensive 101, here are some tools you can use to find a loan to start your next dream or expand your current business.
1. Types of Small Business Loans
There are ten types of business loans available to business owners. The types of loans are as follows: Term loans, SBA loans, business lines of credit, equipment loans, invoice factoring, invoice financing, merchant cash advances, personal loans, business credit cards and microloans.
For businesses looking to expand, term loans would be a good option. For start-ups, it is more common to go the personal loan route, just because it is less likely for a bank to offer a term loan to businesses with no history. This list from NerdWallet’s Steve Nicastro details pros and cons of each loan as well as what each loan is best for.
2. Small Business Administration Loans
One type of loan offered to small business owners is the Small Business Administration loan. This type of loan is guaranteed by the federal government, who agrees to pay back part of the loan in case the lender defaults on the loan. This increases the eligibility for loans to businesses who do not have the best credit, according to Caron Beesley in a blog post on the website for the U.S. Small Business Administration. While this does sound like a good deal, the caveat is that the application process is stringent, to say the least. The next point will go more in-depth on the loan application process.
3. Application Process
Each type of loan calls for different eligibility terms. For some loans, such as term loans, it’s best for your business to have an operating history to show its stability. Most loans will look for strong credit. In the case of SBA loans, while they do take credit into account, they are also there to serve small business owners who may have bad credit but have a solid plan for their startup. It’s hard to qualify for an SBA loan, but if you reach the eligibility requirements, you’ll have a federal agency backing up your loan. This informational page from the U.S. Small Business Administration includes more information on SBA loans along with the eligibility requirements.
4. Repayment Terms
One thing to be aware of for SBA loans, as for any loan, is the repayment terms. For personal loans and term loans, the interest rate differs based on your credit score and the length of the loan. Another benefit of the SBA loan is a longer repayment term compared to other loans such as personal, term, or microloans. Andrew L. Wang from NerdWallet includes more background on SBA loans in this article, along with documents needed for an application.
It’s essential to shop around to find the best loan for your needs. Expanding businesses, for example, may have different needs than startups and should carefully review the different types of loans they qualify for. Banks aren’t the only lenders available as well; look into online lenders and community banks as well. Most importantly, organizing all your information regarding your business (tax ID, legal structure, financial statements) and building your portfolio of information, according to Richard Harroch’s article on Forbes, will be beneficial as you start your search.