This guide outlines five simple loan options every small business should consider for set-up or growth. Every business needs capital for growth and smooth operations. It’s also the very first thing you need to determine before you begin your business.
Depending on the type of business and variety of operations and marketing strategy, you need to gather different amounts to kickstart your business. Savings are perhaps the easiest way to fund your small business. But if you don’t have access to the capital, you can opt for loan options for small businesses,” says NationalFunding.com, providers of small business loans.
There are many popular and easy forms of loans for SME owners. If you don’t have much knowledge about them, read on.
5 loan options for small business
Below we have listed five simple loan options for your small business.
Term Loan
The most basic and common type of business loan options is a term loan, and it’s also known as an installment loan. Eligible borrowers can borrow a lump sum amount for a certain period and pay interest throughout the period until paying out the total loan amount. They can use this money to buy equipment, increase their asset, pay salaries, or use it for other operations of the business.
There are three types of term loans – short-term, intermediate, and long-term. The total loan period and interest rate will depend on the type you choose for your business.
Microloans
If you have a small business that doesn’t need huge capital, you can opt for microloans. They grant you up to $50,000, which is perfect for new businesses. These loans are offered by SBA or similar nonprofit organizations. Your business must be a for-profit business. You also have to show proof of collateral and a personal guarantor to be eligible for these loans. Your ability to repay the loan and proof of good character will also affect your eligibility.
The best thing about micro loan options is that they provide you with quick financing and there is little to no collateral. The interest rate is usually low, too. On the other hand, the amount granted might be too small for some businesses.
Equipment Loans
Businesses need equipment for running operations and producing products. If your business requires expensive equipment and you don’t have the capital to buy them, you can apply for an equipment loan. These loans grant you an amount to buy equipment for your business that adds to the total asset. This equipment will be your collateral for the loans and you will have to give them up if you can’t pay the loan back.
You need to pass a few points to be eligible for these loan options. Your business must be one year old and return $100,000 in revenue. Your credit score also can’t be lower than 550.
The repayment period starts from 36 months and can be up to several years, so you have adequate time to pay it back. The annual rate for these loans is as low as 8% and can go up to 36%.
SBA Loans
SBA or Small Business Association loans are also a great option for new business owners. With this, they can get government-backed loan options which costs them less. However, the application process for this is very long and you might get the funding much later than the period you planned. Businesses that need funding urgently should opt for other loan options.
You can receive any amount of up to 5 million dollars for your small business. However, to be eligible, your credit score must be more than 620. Your business must be registered and not have any illegal activities or sell any illegal products. You must meet the SBA size standard and be able to repay the loan. In some cases, an eligible business with good standing but a poor credit score might also get qualified for this loan.
Business Lines of Credit
If you’re looking for a loan without collateral, a business line of credit is the perfect option for you. This loan is popular for many other reasons. They provide you with a credit limit like a credit card. You can withdraw any amount you want up to the highest limit and pay interest on that amount. After repaying the loan you can borrow more money.
This option is the best for you if you’re unsure about the amount of financing your business needs. Also, you’ll only pay interest on the amount you withdraw contrary to the usual term loans.
Applying for this loan option is very easy and can be done online. Even though you don’t need a face-to-face meeting, you might have to provide pictures of your business and show that it’s active.
Conclusion
Even though there are various other ways to raise capital for your small business, applying for a loan is the most secure way. If you’re eligible, have a good business plan, and can pay back, applying for a loan is the best option for your business.
