What Type of Loan is Best for My Small Business?

October 09, 2017

Your small business needs money. Perhaps you need to buy new equipment or a company vehicle, or you want to expand your space. Maybe you need working capital or have debts to pay off. You may even need to fund a brand new start-up. Instead of using your personal holdings — or asking for funding from friends and family — consider a business loan.

Making the Process Easier

Finding the right type of business loan can be tricky. There is a veritable alphabet soup’s worth of options. Fortunately, small business owners don’t need to become experts in every type of business loan out there. Lendio can help with a no-obligation assessment; a funding manager will walk you through your options and help you decide which choice is best for your business needs.

The ABCs of Small Business Loans

It is helpful for business owners to have a little background on the myriad of loan options available. Here’s an overview of the different types of small business loans and their uses.

  • ACH Loan: These loans are a good option for businesses struggling to find funding due to credit issues. They can help restore bad credit but have significantly higher interest rates than other types of loans. Payments are deducted from your account daily.
  • Accounts Receivable Financing: This type of financing lets businesses shorten the time it takes to get paid, for a fee. Business can borrow up to 80 percent of their accounts receivable, and the lender then collects outstanding invoice payments directly from the business’s customers.
  • Business Acquisition Loan: These loans help businesses purchase other businesses. Most have low interest rates and ten-year terms but can require 15 - 25 percent down.
  • Business Credit Card: Similar to a personal credit card, these cards offer on-demand funding; flexibility for small, long-term, or short-term purchases; and can be leveraged to provide or preserve cash. They also typically come with higher interest rates than a traditional loan.
  • Business Line of Credit: This is a credit account available to use (or not to use) at your discretion. You only owe interest on the funds you actually use. You can use a business line of credit for just about anything your business may need.
  • Commercial Real Estate Loan: This is another term for a commercial mortgage, in which business real estate is offered as collateral. This type of loan is typically used for upgrades, expansions, or additional working capital. It can also be used to refinance your business mortgage or purchase a property.
  • Equipment Financing: One of the most common loans and also one of the easiest to qualify for, this type of loan can be used to purchase more than equipment but cannot be used for working capital, accounts receivable, or refinancing a property. Equipment financing keeps your working capital in your business and can be an excellent way to build business credit.
  • Merchant Cash Advance: An advance is a loan on future earnings that helps preserve equity. Interest rates can be much higher than other kinds of loans, and advances often come with additional fees. Terms typically range from 3 - 24 months.
  • Micro Loan: These loans are relatively small ($500 - $100,000) loans used to help small businesses and entrepreneurs grow or sustain their business. The average micro loan in the U.S. is $13,000.
  • Patriot Express Loan: Offered by the SBA, this type of loan is designed to help veterans start a small business.
  • SBA 7a Loan: Offered by the Small Business Association (SBA), these loans offer flexible financing with monthly payments over either a 10-year or 25-year term. They can be difficult to qualify for, with a lengthy and cumbersome application process.
  • SBA 504 Loan: This type of loan is offered by the SBA to help businesses buy a new building or build a new structure. They offer low rates and long loan terms, but collateral may be required to qualify.
  • SBA Express Loan: Processed more quickly than other SBA loans, these can be used for working capital, equipment, and construction. Funding is available from $50,000 - $350,000, with payments made monthly over a 10-year period.
  • Short-Term Loan: These loans offer flexibility for unexpected expenses. They are ideal for smaller expansion projects and are typically paid back in one to three years.
  • Startup Loan: A start-up loan typically offers $500 - $750,000 to businesses that aren’t operating yet but are ready to go. These loans often require a personal guarantee or collateral, but they also help your business establish a credit history for future purchases.
  • Term Loan: Ideal for businesses going through expansion, these loans are suited for purchasing equipment, buying real estate, or providing working capital. They feature fixed maturity dates, fixed interest rates, and regular repayment terms.
  • VA Loan: This specialty loan is offered to most members of the military, veterans, reservists and National Guard members, as well as spouses of military members who died while on active duty. This type of loan is restricted to mortgages, rebuilding, and expanding or extending a personal home.

Does your small business need a cash infusion? Consider a business loan.

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