Small Business Loans 101: Which is Right for Your Business
Are you a new business owner but you can’t see to get ahead of your game? New ventures need funding. There are some various ways to gain funding for your business so that you can experience the growth and expansion that you need to promote your brand.
But it’s important to get the right kind of funding for your business so that you won’t find yourself getting behind in your payments or other issues, which would defeat the purpose.
In this post, we’ll take a look at some of the most common types of business loans and then look at a few alternatives that you may want to consider to obtain much-needed capital that will allow you to continue growing your brand and your business to the next level.
The Small Business Administration (SBA) is a federal agency that allows small business owners to obtain needed credit and loan money through grants and loans. You have to fill out a form to see if you qualify for an SBA loan and they offer a variety of methods to obtaining the capital you need. The SBA offers the following types of small loans for business owners:
- General small business loans– The SBA has plenty of general small business loans that they can offer entrepreneurs and business owners to start or grow their business. These loans can help new business owners who have special requirements such as loans for expensive equipment or real estate or other needs.
- Microloan programs– Microloan programs provide short-term loans to small business owners that they can use for special causes such as nonprofit child-care centers.
- Real estate and equipment loans-For specific real estate and equipment needs, you can take out a CDC/504 loan to cover these specific expenses. This loan is for fixed assets and can be used to buy building space or special equipment needs.
- Disaster loans– Disaster loans are to cover disaster situations where equipment or property has been damaged due to a natural disaster or other types of disaster. There are certain specifications and criteria that you have to meet to qualify.
Business Line of Credit
If you need a business line of credit more than cash to fund your business, you can consider looking into a business line of credit. For this type of funding, you’ll want to investigate which borrowing and repaying programs make sense for your business. In either case, the opportunity is definitely there for business loans as well as business lines of credit for small businesses.
Keep in mind that both of these sites require that you meet certain requirements, mostly based on your stability as a business with a certain amount of sales that you can verify on a monthly or annual basis. In other words, these companies offer lines of credit and business loans for well-established businesses who have things going well but who need further funding to grow.
Both of these lending organizations advance you a line of credit based on how you are doing with current sales so that they can predict your ability to pay the money back as you go. Unlike traditional loans, these types of arrangements are useful in general because they advance you money that you will make later on while having the credit and cash flow to invest in your business.
Short Term Loan
Short term loans are a great way to get some needed capital up front while working to build your business. A short term loan is a great opportunity for smaller businesses or individual entrepreneurs to get their hands on some quick funding, while also not having to go through a long pre-approval process, as these loans are usually much smaller in size.
Depending on an individual’s credit history and the amount of the loan, the repayment plan and rates can vary heavily here as well. In most cases, approvals are done within 24 hours and rates usually start at 10%.
Merchant Cash Advance
Another option for small business owners is to get a merchant cash advance. This type of agreement allows you to fast financing that puts money in your bank quickly so you can make needed purchases for supplies, products, and wholesale items. This allows you to get ahead while waiting for customers to pay their invoices. One of the main problems in inhibiting cash flow is the fact that clients do not always pay their bill on time. This can hold up your cash flow and keep you from being able to get ahead.
With a merchant cash advance, it gets you ahead of the bottom line while moving your business forward, rather than lagging behind.
Personal Loan for Business
Remember that most lending institutions and banks require that you use business loan funds for business needs only. Many of them do not follow up on this requirement. However, they can decide not to loan you more money in the future if you do not use it for that purpose.
A personal loan, on the other hand, can also be used for personal needs as well, which means that there are no stipulations on how you can use the money. This is a great option for business owners who work at home or whose business and home finances are a fine line that often crosses over.
Personal loans can be obtained from a variety of sources, including traditional banks, online investors, angel investors, and many others.
Finding Venture Capitalists and Angel Investors
Another alternative to locating financing for your small business is to locate venture capitalists and investors who want to invest in growing businesses. If you cannot get on “Shark Tank” to get an investor, try researching Angel Investors, a group of entrepreneurs who enjoy helping young entrepreneurs and business owners to grow their brand. Venture capitalists also actively look for opportunities to grow their money and their influence by connecting with new businesses.
Which type is best for me?
Well, there you have it. These are the most popular types of ways to obtain funding for your new or growing business. All of these are viable options, depending on whether you qualify based on your unique situation. Remember to be responsible when you borrow and never borrow more than you can easily pay back as you earn money.
But just remember that every business is unique and has individual needs that are exclusive to your business. Think about your real estate needs, equipment needs, and credit and cash flow requirements. Then consider how much funding you need to get ahead. Remember, you are not trying to get rich with a loan. In fact, the terms are misnomers and should not even be used in the same sentence.
You’ll never get rich on a loan. But using one of these methods to get ahead just enough to launch a new product, a new idea, or to increase your staff may be the shot in the arm that you need to take your business to the next level.
We hope these ideas help you to reach your business goals and put a little turbo into your business power so that you can keep things moving forward.