Term loans are one of the most popular forms of small business financing and involve a lump sum of money that is repaid over a fixed period. Monthly payments are usually fixed and include interest in addition to the principal balance. In addition to traditional bank loans, SBA loans can be one of the most cost-effective ways for a company to obtain funding. However, the requirements for applying for a loan can be extensive, and you usually need a personal credit score of 680 to qualify.
The loan process can also take several weeks or even months to complete. SBA loans are great, if you qualify. But traditional loans offer even more opportunities for people who don't meet the requirements or need something more flexible. Here are a few different types of traditional loans. Many lenders offer flexibility in when and how often you repay your loan.
The longer the terms, the smaller the payments, but the more interest you pay. Conversely, the shorter the loan, the less interest you pay. When selecting a small business loan, it's important to consider your monthly payment. You need to be able to afford it without dipping into savings or affecting cash flow. Deadlines can range from as little as three months to 10 years.
A business line of credit is very similar to a credit card. When approved, the company receives a maximum credit limit. You can borrow from the fund at any time, as long as they don't spend more than the loan limit. You only pay interest on money withdrawn from the line of credit.
This funding is also faster than many options, since there is no need to provide a business plan or tax returns. Companies that need funding to purchase commercial properties could benefit from a commercial real estate loan. In addition, you must have documentation of the terms of the loan in case the IRS decides to audit your business. When people owe you money as part of your business but never pay up, it can be devastating for your business. With some online lenders, qualifying businesses could access funding in as little as one day. Interest rates tend to be low (or non-existent in some cases) and qualification criteria are generally less stringent compared to other commercial loans.
Small Business Administration is a federal organization that serves as a resource for small business owners. Getting a business acquisition loan can be a great boost for your business, as buying a franchise or an existing business is an excellent way to jump straight into a functioning business without having to build it from scratch. It may seem like funding for small businesses should be easy to obtain, but borrowing money may not be as straightforward as it seems. It's important to compare several loan options when looking for business funding for startups. The lack of information causes bankers to present you with the most common loan package instead of an individualized offer that takes into account your short- and long-term goals. SBA loans: backed by a payment guarantee from the Small Business Administration (SBA) but funded by bank lenders, SBA loans are often easier to apply for than a bank-financed loan.
Whether you're new to the industry, your personal or business credit scores are low, or you're looking for specific rates and terms, there are different loan products available. SBA loans are government-backed loans that are available to small businesses from private sector lenders. Running a small business can be expensive and seasonal increases, unexpected emergencies, unpaid bills or the need for expansion can lead a business owner to seek out funding options. Grant Olsen is an expert writer specializing in small business lending, leadership skills and growth strategies.
