It’s no secret that financing a business can be challenging and small businesses often have a harder time than big businesses. However, in today’s market, there are more small business loan options available than ever before. Whether you are looking for start-up financing, capital for growth or up-front cash to get your business through a rough patch, there are loan options to choose from. Here we will look at 5 ways to get a small business loan.
1. Small Business Administration (SBA) Loans
These are loans backed by the Small Business Administration (SBA). The SBA does not provide the loans itself, but rather it guarantees the loans from banks, allowing banks to offer more favorable terms. These are commonly 10 year loans and the relatively low interest rates, make them an attractive option for small businesses which have been operating for at least 2 years and which have strong credit scores.
2. Short-term Loans
Short-term loans are a convenient and fast way for a small business to get an infusion of capital. These loans are commonly favored by small businesses that are not eligible for SBA loans. Different lenders will have different requirements, but it may even be possible to find loans for bad credit. These loans are generally required to be paid back within 2-3 years. The loans can be applied for online with fast approval that can result in funds in your account within a week. Many small businesses favor these types of loans from online lenders, for example, Lending Club.
3. Invoice Factoring
Invoice factoring helps businesses cover expenses while they are waiting to be paid by their customers. This is considered by small businesses that have cash flow issues. Invoice factoring allows businesses to choose which invoices they submit for funding, which makes them more attractive than traditional factoring which has high fees and long terms. In addition, invoice factoring does not contact the customers to verify payments like traditional invoicing does.
4. Conventional Bank Loans
A small business with good credit and good revenue can turn to the bank for funding. This is more common for a small business that is looking to expand after a significant period of success. Banks commonly offer lower interest rates than many other loan sources, but they do tend to have stringent approval processes.
As the name suggests, these are small loans, typically ranging from $500 to $35,000. In fact, the loan amounts are low enough that commercial banks often will not even consider this size loan. Microlenders are non-profit organizations that offer small loans that may be ideal for small businesses. The approval process is generally short and simple with more flexible requirements.
Picking Your Loan
There are many factors to take into account when choosing a loan type and a type of lender to finance your small business. Conder the size of the loan you need, how quickly you need the cash, how long you need the loan for and your credit score. This will help you decide which avenue to pursue.
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