The 6 Different Types of Small Business Loans
Small businesses have a short list of places that will provide them with the working capital they need to get them through times of expansion, growth or longer pay periods.
Government Small Business Loan
Government small business loans are great for startups and small businesses that either don’t have a strong credit background or finance history. These loans are difficult to get for a good reason. Rates from government small business loans are much lower than those from a bank or private lender. However, if your business is chosen for one of these loans, you are required to follow strict repayment guidelines and report your progress back to the Small Business Association.
Small businesses can attempt to get a bank loan, but the number of those who are successful is small. Bank loans require potential lenders to have decent credit and a strong financial history. If your small business manages to land a bank loan, you’ll be facing years of repaying back high interest rates. That being said, if your business needs long-term funding, getting money through a bank is an option to consider. Most traditional term loans are for around five years, meaning you’ll get a decent amount of working capital to use to build your business up.
Private Lender Loan
Private lenders will often offer small business loans to companies looking for fast cash, but it comes at a price. Some private lenders will ask for a large portion of your company’s stock in exchange for a loan or instead will require you to sign off on a contract that gives them a certain percentage of your profits for a certain amount of years.
Business Line of Credit
Similar to a credit card, a business line of credit provides your company with access to a certain amount of funds. What you use, you pay back with interest and what you don’t won’t hurt you. The only problem is that, also like credit cards, business lines of credit can have horrible late fees attached. Miss a payment or two and watch the debt add up.
Equipment Financing Loan
Some small businesses turn to equipment financing to get the extra cash needed to run their business. This is a good option for small businesses who use industrial equipment or machines with high value. By using your equipment as collateral, your company can get up to 100 percent of that equipment’s worth up front. However, your company has to be certain that it can pay back said loans because if you don’t, your equipment is now the property of whoever you financed it with. Not only is your business in the dumps, but you can’t even turn around and sell your equipment to recoup some of the money.
Small business loans don’t necessarily have to actually be considered loans. Invoice factoring allows small businesses to boost cash flow, purchase equipment or move spaces without disturbing their finances. There are certain business factoring companies that specialize in funding small businesses in particular.
Invoice factoring is the process of selling a business’ invoices to a business factoring company for a cash advance.
- Your company considers factoring debt and contacts Factor Finders by phone or online form. From there, we’ll match you with one of the business factoring companies we work with.
- The factoring company puts your business through a quick approval process. Once approved, your business can send the invoices you wish to factor to the factoring company.
- The factoring company verifies that the invoices are legitimate, then advances your business up to 95% of the accounts receivables, keeping the rest as reserve.
- Your business’ customer then pays the business factoring company on thier normal payment terms. Once paid, the factoring company releases the reserve to your business minus a small factoring fee.
- It’s fast. Businesses can get funding through factoring of receivables in as little as 24 hours.
- It’s not debt. Businesses do not have to pay back borrowed money when factoring.
- It’s easy. All your company has to do to get started is either give us a call or fill out an online form. We’ll handle the rest from there!