No doubt you are familiar with the expression “You have to spend money to make
money” where a business is concerned. The concept of borrowing money from
banks, credit agencies and other types of lenders for the purposes of making
money is nothing new. It is a relatively basic principle that has been with us
since the early trading days.
So where to get a small business loan?
New business owners oftentimes need some form of financing to get up and running
in their company. On the other hand, existing businesses use financing venues
in order to buy more inventory or assets, expand their enterprise, or hire more employees.
The following are the 13 most common forms of financing and business loans that can help
accomplish your goals.
1. Business Acquisition Loans – these loans are more specific
and are categorized as those being applicable to the purchasing of established
or existing businesses.
2. Debt Financing – normally done through a bank or traditional
lender. Loans of this nature are normally limited by the amount of personal
assets that the business owner has available to use as a security instrument
3. Franchise Start-Up Loans – for franchisees only. These loans
apply to the acquiring of capital necessary for purchasing a franchise,
specifically nationally recognized franchises.
4. Line of Credit – normally designed for shortages of
operating capital, a.k.a. cash flow. Lines of credit should never be used for
long-term investments or any major purchase. Rather than being handed a check
by the lender, you are allowed to borrow (in prescribed increments) a certain
amount of capital annually. Lines of credit are usually less than $200,000 and
are normally based on accounts receivable and current inventory. But with this
comes a serious caution. The interest and late fees on these can compound with
a snowballing effect and leave you stuck with an insurmountable amount to pay
off more so than any other type of loan. Here’s a hint - pay these promptly
when they come due.
5. Long-Term Loans – normally used for business expansion (Business Expansion Loans), improvement,
or purchasing where facilities, industrial plants, major equipment, and real
estate are the issue.
6. Micro-loans – loans that can be up to $35,000 though the
average amount is around $13,000. These are normally administered through
either not-for-profit or non-profit organizations and are approved by the Small
Business Administration (SBA). Usually these loans are intended for the
purchase of equipment, fixtures, furniture, inventory, machinery, supplies and
working capital. Oftentimes, attendance in a self-employment training course is
required, and the funds and the individual are closely monitored. These loans
are not to be used (and are not allowed to be used) for existing debt, and
normally, they are issued for a term of 6 years or less.
7. Professional Loans – CPA’s, Dentists, Doctors, and Lawyers
only on this one. As the name implies, these are only for professional people.
8. Revolving Check Credit – open-end credit that is normally
extended by banks only. Though this type of credit is prearranged for a
specific amount, it entails the writing of a special check with repayments
being made in installments over a specified period of time. The finance charges
are normally based on the amount of credit that is used each month and on the
9. SBA Commercial Loans – your Small Business Administration hard at work.
These types of loans are not for the easily frustrated applicant in that they
are some of the most difficult loans to qualify for, due to the fact that the
SBA guarantees repayment on these. The loans are made to smaller businesses
from private-sector lending agencies (banks, etc.).
10. Secured Working Capital Loans – involves putting up your
assets as collateral in order to get working capital. Basically, you are
exchanging your assets for cash and you know what that means if you default. So
my advice to you is that whatever asset you choose to put up as collateral,
make sure it won’t break your heart (or especially your wife’s) if you lose it
because something unforeseeable results in defaulting on the loan.
11. Short-Term Loans – used to raise cash for accounts payable,
inventory needs, and working capital. The positives with this type of loan are
that they usually require less collateral and have a smaller interest rate
attached to them.
12. Start-Up Loans – as the name implies, these are loans that
provide capital to the new entrepreneur on the block.
13. Unsecured Working Capital Loans – can be a tough loan to
get depending on the credit worthiness of the applicant. These unsecured business loans are
provided strictly as working capital and require a very good credit profile.
More info from SBA.gov