Loan Options for Funding Your Small Business
Owning a business can be a handful, no matter the scale. Big or small, you have to make a lot of decisions and face many risks, in the long run, to maintain your business on track.
These risks include finding the right loan option for your business. Loans are a serious commitment and can either help improve your business or lead it to ruin. For this reason, as a business owner, you need to carefully consider which funding option you should choose.
Small Business Loan Options
If you plan to grow your small business or cover operating its costs but lack sufficient funds to do so, it is wise to consider these small business loan options:
- Loans offered by Banks and Credit Unions
There are several types of loans that banks and credit unions offer to help you with your business.
These are the following:
- Commercial Real Estate Loan: A commercial real estate loan can help you buy land or property for your business. Also, this type of loan can be used to expand or remodel your business’ building.
- Business Term Loan: A business term loan is usually availed by borrowers to buy large assets such as equipment or any machinery that is essential for business.
- Vehicle Loan: If you need to buy a car or a truck for your business, a vehicle loan may be best for you.
- SBA Loan: Some banks and credit unions who landed a partnership with the Small Business Administration offer an SBA loan to help your business out.
- Loans from Online Lenders
Aside from banks and credit unions, some online lenders can also cater to your business-related needs.
These online lenders can help you out with the same loan options that banks and credit unions may offer. Moreover, if you are approved for a loan by an online lender, you’ll receive the amount upfront.
- SBA Loan
The Small Business Administration (SBA) is an agency owned by the government to help small businesses. The SBA partners with banks and other lending institutions to help small business owners secure funding.
You should look into how to get a government contract if you want to advance your profession, fund a large project, or raise your income.
The government is a public entity that hires skilled private-sector personnel to finish projects through Government Contract Financing. Government agencies are given a budget to plan and execute programs. The great majority of these projects are outsourced through a bidding process.
Furthermore, SBA loan amounts range from $500-$5.5 million.
SBA loan requirements vary from lender to lender. However, they usually require the following:
- You own a for-profit business that is registered and legally operating
- The business is situated in the United States
- You have invested your own time and/or money in the business
- You are unable to get a loan from other lenders
- US Department of Agriculture Rural Business Loans (USDA Loans)
USDA loans share many similarities with SBA loans. However, USDA loans focus on rural businesses to improve the economy and provide jobs in rural areas. Furthermore, USDA loans are backed by the government and made by lenders such as banks and credit unions.
To qualify for a USDA loan, the following needs to be met:
- Your business is located in a rural area with a population fewer than 50,000;
- You need to pledge collateral such as real estate, equipment, or machinery worth the value of the loan you are planning to get.
Small Business Loans Alternatives
If you think getting a small business loan is not the right choice for you, you may want to take a look at these other options:
- Business Line of Credit
A business line of credit allows you to borrow money up to a specified credit limit and pay interest only on the portion of the money that you have borrowed. You can draw and repay any amount as long as you don’t exceed the set credit limit. It is more like a credit card.
- Business Credit Card
Business credit cards function similar to personal credit cards. However, they should only be used for business-related expenses. Some business credit cards offer rewards programs that can help you save money or an intro 0% APR that helps you make purchases that are interest-free for an allotted period.
- Personal Loan
You can get personal loans from traditional banks, online lenders, credit unions, and other financial institutions. Some even offer loans for horrible credit scores. You can apply for a personal loan and pay it back with interest through installment. Moreover, you can also use a personal loan to finance your small business’ expenditures.
What You Should Know Before Getting a Loan for Your Small Business
Here are some of the important key points to take note:
- Is a Loan Needed?
You need to determine first if you truly need a loan or not. You wouldn’t want to see your business struggling due to unnecessary debt. It would be best to look at all the options you could think about before making a final decision.
- Make a Plan
After deciding what loan to choose, you should make a plan. You should be able to know how you are going to use the money. Besides that, you should also think about how you will repay the loan without bringing adverse effects to your business.
- Shop Around
It will help if you compare all lenders that offer the same loan you are planning to apply for. Some may offer lower interest rates and fees than others. Thus, shop around first.
It is wise to consider your loan options carefully. You should do some research and compare these options to know which one is best for your business. Aside from that, always remember to create a contingency plan. You can never be over-prepared in terms of financing for the benefit of your business.