There are tons of loans out there for small businesses, so how in the world do you know which one you need for your business?
An SBA loan is a long-term, government guaranteed loan. Because the Small Business Administration (SBA) is guaranteeing the loan, lenders can offer you a lower interest rate than if you went to a bank.
SBA loans are great if you don’t qualify for a bank loan or need a lower interest rate than what the bank can offer.
A term loan is like a traditional bank loan. You’re lent a fixed amount of funds up front, then you pay that back plus interest over a set amount of time.
Term loans are great if you need the money to build long-term growth.
Business Line of Credit
With a business line of credit, you can borrow up to a maximum amount. You can use the credit as you need it, but you only pay interest on the amount you actually borrow. It’s kind of like a credit card.
A line of credit is great for paying for short-term expenses.
Equipment financing helps you buy the equipment you need for your small business – whether that’s computers or machinery.
Equipment financing is a great option if your credit score isn’t great because the equipment itself is your collateral.
If you have outstanding invoices and need a steady cash flow, then you can sell those invoices to a lender. The lender gives you a portion of the invoice amount and holds onto the rest until the invoice is paid. Think of it as a cash advance.
Invoice financing is great if you have a solid customer-base, but need a steady cash flow.
Short-term loans are typically paid back within 18 months or less.
They’re great if you just need a little extra cash to get you going.
Merchant cash advances are great if you need some extra cash, but want to pay based on ability.
With a more traditional loan, you’ll pay the same amount no matter what. With a merchant cash advance, however, you’ll pay less during slow weeks because you won’t have had as many credit card sales.
Personal Loan for Your Business
If your business doesn’t have any financial history yet, but you have a good personal credit score, then a personal loan for your business might be the way to go.
How Can I Get Ready to Apply for a Loan?
Every loan will have different application criteria, but there are some steps you can take no matter the type of loan.
Determine Why You Need the Money
Knowing why you need the cash will help you figure out what kind of loan is best for your company, and can help you make sure you actually need the money. (You don’t want to take out a loan if you don’t need to.)
After you’ve determined why (and if) you need the money, you can start comparing your options. You want to choose a loan-type that fits your needs and works with your financial history.
For example, if you need money to start your business, your options will be more limited because your business doesn’t have any financial history.
See if You Qualify
Obviously, you won’t be able to determine whether you’ll actually get the loan, but you can look at the loan requirements to see if it’s even worth your time to apply. You’ll want to consider things like:
After you’ve done all that, you can start gathering the documentation you need to apply for the loan. If you collect all the documentation before applying, you won’t have to worry about holding up the process while the lender waits for you to submit some other document.