To know what type of business loan might best suit your company's needs, you need to think about the purpose of the loan. That is to say, what do you most urgently need the funds for? How quickly do you need the funds? And what type of terms do you desire as far as a business loan goes? There are a variety of business financing options out there, just as there are a variety of lenders that you can work with. So the key is going to be to do your research, explore your funding needs in-depth, and make choices that align with your goals. In this article, we take a look at a few of the different business loan options available.
Business Loan Options
SBA loans
Among the most popular loan products are SBA loans. This is largely because an SBA loan does come with fairly attractive terms as far as the interest rate and repayment period. That said, they can be more difficult to qualify for and the actual application process is somewhat lengthy. There are 3 primary types of SBA loans.
SBA 7(a/) Loans
These tend to be the most common as the funds can be used for just about any business need you have; not to mention, the loan amounts are on the higher side, ranging up to five million. The other attractive part about the SBA loan 7(a/) is that if a business has been turned down for a traditional bank loan, this may be a viable option. That is because the SBA guarantees the loan up to 85%. So if a borrower defaults, the bank can recoup its losses. There is thus less risk involved on the lender's end.
SBA 504 Loan
The 504 loan is generally for larger, fixed asset purchases and is often done in conjunction with a CDC (Certified Development Company/). The 504 loan program is frequently used for purchasing such things as real estate, large physical expansion projects, and heavy machinery. The cap on these loans is 5.5 million. And again, the SBA will guarantee a percentage of the loan so that bank risk is mitigated.
SBA Microloans
As the name of this loan product suggests, microloans are smaller loans that businesses can apply for. The cap is only 50k; however, if you need cash for immediate short terms projects, this may be a good way to go. The interest rates on these are very competitive.
Other Options
A business line of credit
If you foresee a need for a flexible stream of cash in the future, then perhaps your company should apply for a business line of credit. Somewhat like a credit card, a line of credit enables you to draw on an approved amount, and you only pay interest on the money you take from the loan—not the entire amount established. Rates on a line of credit also tend to be pretty competitive. And when you do pay back the money, it is there for you to use again as most lines are revolving lines.
Business credit card
For those newer in business or those who may have difficulty qualifying for other types of loans because of credit score issues for example, then a business credit card might be a great way to get access to purchasing power and also start building a credit history. Ideally, you will pay off what you owe monthly so that you do not get too deep into debt. The good thing about using a business credit card is that so many of them come with certain perks and rewards that could be beneficial to your business.
Equipment financing
Equipment financing can be easier to qualify for than some of the other loan programs, as the equipment stands as the collateral for the loan itself. Because of this, lenders will often offer 100% financing. There is far less risk because if the applicant defaults, the lender will just seize the equipment purchased and sell it to recover the money owed. That said, rates can range on this particular loan product dependent on the borrower's credit score, years in business, and annual revenue among other such factors. You could see as low as 7% or as high as 40% in some instances.
Invoice financing
If you have invoices that customers have yet to fulfill, you can theoretically sell these to a lender and they, in turn, will give you a lump sum payment as they work to collect on the unpaid invoices. The key to getting one of these types of loans is that you have to have made several sales so that there is something that can be turned into cash. The loan can work in a couple of different ways: some lenders will require you to make monthly payments, while others may simply take over the job of collecting on the invoices. You would then pay a percentage (anywhere from 1-3% per week/) of the invoice until that invoice is paid. This type of funding can cost a bit more, so look carefully at all relevant terms before deciding to go this route.
Commercial real estate loans
If your company is looking to finance a property, then a commercial real estate loan is probably going to be one of the first options you look into. There are going to be costs associated, as there are with any type of mortgage. So you will likely be looking at closing costs, surveys, inspections, title insurance, taxes. Keep all of this in mind, when accounting for the total cost of the loan. Often referred to as jumbo loans, they often do have attractive interest rates; you want to shop your loan around first.
First Union Lending is here to help. We offer numerous loan programs to get small business owners the cash they need when they need it. And there is no one size fits all approach with us—we custom tailor a loan specifically for your company. Call today!