Starting a business is a big undertaking, both emotionally and financially. That’s why many new business owners opt to get help with funding their venture. There are tons of options out there if you need to finance a new business.
The trick is knowing which one is right for you. Let’s review a few different types of business loans and who they’re best for. It will help you evaluate your options and take the first step to start your business.
Term Loans
This is probably the most familiar type of loan to you. With a term loan, you get a lump sum of cash upfront and pay it off over time, with interest. It’s a fairly standard type of loan and many people take advantage of it due to its ease of payment and the fact that you get your money right away.
Some of the pros of this type of loan are that you can often borrow more than with other types and you can work with online lenders, not just banks. This often speeds up the application and approval process.
The cons are that you need to have a solid existing credit score and you might have to put up collateral against your loan. For these reasons, term loans are best for businesses that are already established and looking to expand.
Small Business Administration Loan
Also known as SBA loans, this type comes directly from the federal Small Business Administration. These loans can cover a range of costs such as working capital, equipment purchases, or real estate purchases.
Plus, they also offer lower interest rates than other loan types, which is why so many people will try for these first.
In addition to low-interest rates, you can also borrow up to $5 million (if you qualify) and there are long-term repayment options so you don’t feel pressured to put all your profits toward paying off debts.
Nothing this great comes easily, however.
The cons of this loan are that they can be very difficult to qualify for and there’s a rigorous application process. They’re typically a good choice only if you’re looking to expand or if you have a strong credit history and can wait a while to get your funding.
Short-Term Loans
Short-term loans are a little different from term loans because they require repayment within 3 years and are typically for smaller amounts of money. A short-term loan is a good option if you need some extra cash to tide you through a tough time.
Like term loans, you’re not limited to just banks for your short-term loan.
You can work with online lenders to establish the right rates and repayment plans for your business. This means you’ll have to do some research and shopping around to get the best deal for your buck.
StartUp Loans
Finally, there’s the loan for the new business owner on the block. Startup loans exist to help new businesses become a reality and ease the initial financial burden of the business owner.
These are great options if you’re ready to get your business set up but don’t quite have the cash in hand. They’re relatively easy to apply for and the application process is fairly quick.
These loans are often available to companies that have little or no established credit, which is convenient but can make borrowing rates much higher. In general, it’s advised to use these loans as a starting point that you can easily repay in a few years.
Then if you need more funding, you can apply for a more traditional business loan.
Starting your business or keeping afloat requires a little help sometimes. Check into some of these business loan options to find the right type of funding to keep your business moving forward. There’s no shortage of help for you.