Small Business Loans
Small business loans offer small businesses working capital to expand operations, buy equipment, maintain cash flow during off-seasons, plan for unexpected expenses and more. Several types of small business loans are available across the United States.
Types of Small Business Loans
There are various types of small business loans that cater to the different needs of small businesses. These loans serve different purposes, have different repayment terms, and provide different loan amounts. Businesses should understand the different options for small business loans to find which is best suited to them.
One type of small business loan is a bank loan. The loan amounts for a bank loan typically range from $10,000 to $1 million. Small businesses can use these loans to purchase an asset like real estate or equipment, or possibly grow their business. To qualify for this type of loan, a business will need a guarantor(s) with strong personal credit, operating for several years, and illustrate good business financial health.
The Small Business Administration (SBA) offers loans varying from $5,000 up to $5 million. The government works with lenders to offer long repayment terms and relatively low interest rates. These loans are best for long-term investments or large purchases such as real estate or equipment. To qualify for this loan, a business will need a guarantor(s) with strong personal credit, organized bookkeeping that illustrates a healthy financial state and/or reasonable financial projections, and no requirement for immediate funding.
Business Line of Credit Loans
A business line of credit is where a lender provides a business access to a certain amount of credit ranging from $1,000 to $250,000. This type of lending product is best used for working capital or unexpected business expenses since a business will not have to make payments or incur interest until they decide to use the funds.
Secured and unsecured loans each has their own strengths and weaknesses. Secured loans will require collateral from vehicles, property, or other assets. These loans range from $50,000 to $100,000 and typically have lower interest rates than unsecured loans. Unsecured loans often have higher interest rates since they do not require collateral. An unsecured loan can be up to $50,000 and is usually offered by online lenders.
Business Term Loan
A business term loan is a lump sum of money that is paid back to a lender at fixed intervals. It can be offered either as a short-term loan, where repayment periods are typically 3-18 months or as a long-term loan where repayment periods can be 10+ years. Depending on the lender, you can pay off loans weekly, bi-weekly, or monthly. This loan can offer up to $500,000 and is mostly used for large one-time investments.
Small Business Loans Application Process
In terms of a small business loan application, lenders offer different eligibility terms, but most lenders will look at your business and personal credit score along with a business plan. Most lenders will look for a business with a score ranging from 690 to 850. They want to see a strong plan showing you have a plan to repay the loan, which can make or break an application. Some may also consider how long you have been in business, the annual revenue, bank statements, and collateral. The lender’s approval process and the timeframe for approval and disbursement of funds are determining factors.