The SBA 7 (a) loan is the most common SBA loan and can help cover the costs involved in buying an existing business. It can also help you purchase real estate or land, finance equipment, refinance debts and meet working capital needs. A conventional business loan is the standard commercial loan offered by a bank or other lender, such as a venture capital firm. With a conventional loan, the lender provides an amount of money that must be repaid within a set period and with a generally fixed interest rate. To buy an existing company, these may be one of the only options for large scale acquisitions.
For many small business owners, SBA loans work while other loan options don't work. The SBA does not lend to small businesses, but instead guarantees loans from lenders, such as banks and credit unions, eliminating some of the risk of lending. As a result, SBA loans typically have favorable interest rates, but they also have specific criteria that borrowers must meet to qualify. See the SBA 7 (a) Loan Application Checklist for more information. With a traditional term loan, you borrow a fixed amount of money up front and repay the money, with interest, according to a specific repayment schedule.
A variety of lenders offer term loans, including banks and online lenders. Business lines of credit can create a cushion in the event of a cash flow emergency and are useful when you need money quickly. Banks often offer secured and unsecured lines of credit. For insured lines, you must deposit some assets as collateral. SBA loans are an excellent product for small businesses and, aside from a traditional bank loan, are the most affordable sources of capital.
New and established businesses can apply for SBA loans, but there are different SBA loan programs for different business needs. It's also important to note that while SBA loans are designed to help small business owners who can't qualify for traditional bank loans, they still require you to meet high requirements, including a strong business financial situation, a strong credit history and a few years in business. One of the most popular asset-based loans are equipment loans, also called equipment financing. This type of small business loan is a potential option if you're looking for money to purchase new or used equipment. Instead of paying directly for expensive equipment, you can apply for a lease or loan of the equipment to finance the purchase. Equipment financing is available for established and new businesses, and even business owners with lower credit scores often qualify. Unlike other types of business loans, business owners with less than ideal credit can often qualify for equipment financing because the team itself secures the loan.
This way, you don't need to provide any other warranty; the equipment itself serves as a warranty. Loans for equipment have fairly affordable interest rates, ranging from 8% to 30%, depending on your company's age, credit and finances. You can use equipment finance to buy or lease a variety of types of equipment, which may include computers, appliances and vehicles that you use in the course of your business. Another popular type of asset-based loan for businesses is invoice financing. With this type of business loan, you use your outstanding bills to get a cash advance from a lender. Unpaid invoices act as a guarantee of the advance.
With bill financing, a lender advances you a percentage of the total amount of your bill, usually between 85 and 90%, and withholds the remaining percentage. You can use the down payment to cover the company's expenses while both of you wait for your customers to pay. During that time, the lender will normally charge a weekly fee. Once your customer pays, the lender will return the remaining 10% to 15% minus the commission. Overall, invoice financing is an excellent option if you're having cash flow problems as a result of billing multiple customers who all pay at different times. You can use the down payment to cover payroll, rent and other operating expenses. If your company wants to purchase commercial property such as a retail store, office building or manufacturing plant then you may want to opt for a commercial real estate loan.
Like equipment financing, the underlying property acts as collateral for this type of commercial loan. A microloan can be an excellent option for those looking to launch a startup and for entrepreneurs with microenterprises (e.g., food trucks, vendors and independent companies). The maximum term of SBA microloans is six years. Interest rates are usually the highest among SBA loans but they are still relatively low; you can expect interest rates of around 9% to 16%.A popular option for startup funding is to use a personal loan for business purposes. Both banks and online lenders offer personal loans; these are based solely on your personal finances and your credit so your personal credit score is extremely important.
Ideally your credit score must be above 650 to qualify; interest rates on personal loans range from 7% to 36%, depending on the lender and their ratings and the repayment period is usually less than five years. In addition to personal loans there are other ways to leverage personal finance for business purposes; if you're a homeowner then you may be able to use a home equity loan for business purposes. The benefit of this type of small business loan is that when business is slow you pay less and when it's booming you pay more; however it's important to note that this type of cash advance is usually one of the most expensive types of business finance on the market with APRs that can approach 100% or even higher. If your company has an impressive track record and good credit history then you may be able to apply for either bank or SBA loans; standard SBA 7 (a) loans are great options if you need working capital or want to expand or...
