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 against default.
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 outstanding balance.
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