Each year, more than 627,000 new small businesses open for the first time. No matter what industry they’re in or what types of services they provide, all of these new businesses have one thing in common: they need money to get things off the ground.
Though it’s possible to bootstrap or self-fund your business, you don’t have to. There are many different types of loans available to help you get the money you need quickly.
But you need to know how each type of loan works to make sure you’re choosing the best option for your business. Here are a few of the most common and most flexible options you can choose.
The Small Business Administration understands that new companies can have a hard time getting financing. Traditional banks want to see a long history of profits and stable business practices prior to offering a loan. For most new companies, meeting those minimum requirements just isn’t possible.
With SBA loans, the Small Business Administration guarantees the loan, reducing the risk lenders face if you end up defaulting.
These loans are much easier to qualify for. But you’ll still want to shop around and get quotes from several lenders. This way, you’ll be able to see which lenders offer the best rates and terms on their small business loans.
Business Lines of Credit
Business lines of credit are an alternative to the more traditional types of small business loans and function similarly to credit cards. Instead of giving you a lump sum of money, lenders issue you a line of credit that you can use as you see fit.
You’ll only pay interest on the amount of money that you use at any given time. And you can use it more than once or let it sit in case of emergency. Even better, there aren’t significant restrictions on how you can use the funds.
If you need to hire new staff or want to make upgrades to the building, your business line of credit can help you cover the cost.
A term loan is one of the more traditional types of financing available to business owners. Lenders issue you a lump sum of money and expect you to repay the balance plus any interest accrued on the loan by the end of the loan’s term.
The exact interest rate will vary based on your business, your financial situation, and your credit score.
In most cases, the loan will have a fixed interest rate which means your payments will stay the same over the life of your loan. For business owners worried about setting budgets, term loans can provide them with the stability they need to better manage their funds.
Choosing the Right Types of Loans Matters
With so many types of loans available to small business owners, figuring out which ones best fit your needs can be tough. Keep these loan types in mind when you start looking for financing.
As long as you compare your options in detail and get quotes from several lenders in your area, you’ll be sure to find a loan that works for your business and your budget.
Looking for more tips to help you set your new business up for success? Check out our latest posts.