A Guide to Finding The Best Loan for Your Business

Jan 05, 2024 By Susan Kelly

Your business may need to borrow money for various reasons, and there are a variety of financing solutions available. Having a wide range of loan options is beneficial, but it also necessitates thorough study before applying.

Before obtaining business finance, you must first select the appropriate business loan. Several variables might affect the type of business loan that is right for you, including your qualifications, the purpose of the loan, and the terms you desire.

What Is A Business Loan?

If you don't have a balance sheet like Apple's, you'll need business finance at some point. Large corporations are not exempt from the need for short-term financial injections. Finding the right finance model is critical for small businesses.

In the wrong hands, you could lose a portion of your business or be tied to a long-term repayment agreement that would limit your growth for years to come.

Debt Financing: What Is It?

You're probably more familiar with debt finance than you realize as a business owner. Do you owe money on a house or a car? Debt finance is used for each of these options. It's the same for your company. Some bank or lending institution lends money to businesses in the form of debt. Private investors may offer it, although this is not typical.

Here's how it all works in practice. You go to the bank and fill out an application when you determine you need a loan. If your business is in its infancy, the bank will do a personal credit check.

Equity Financing: What Is It?

It is possible to get a rough notion of equity financing by watching ABC's blockbuster show "Shark Tank." This comes from venture capitalists or "angel investors," who invest in startups and small businesses.

Rather than a human, a venture capitalist is more often than not a corporation. Partners in the firm are accompanied by teams of accountants, lawyers, and financial consultants who conduct thorough due diligence on any potential investment opportunity.

Popular Business Loans

The following is a list of the most typical ways entrepreneurs raise money. If you're looking for the best small business loan for your company's needs, pay close attention to the terms, rates, and other factors, just like you would at a paint store.

1. SBA loan

You can think of the Small Business Administration (SBA) as a personal government buddy. This federal agency's primary mission is to assist small businesses in locating the financial support and resources they require.

When it comes to disadvantaged small businesses, the SBA is there to help, even if they can't get aid from anybody else. Starting at $50,000, you'll be able to get a loan from the SBA. The time spans between 10 and 25 years, on average. SBA loans have a reputation for taking a long time and requiring a lot of paperwork.

2. Short term loan

SBA Express Loans on steroids are short-term loans. Once you've submitted your application, you might have the money in your bank account as soon as 24 hours if it's accepted. The time it takes to binge-watch an entire season of your favorite TV show is about the same as it takes to get a loan.

These loans have a maximum of $500k because they are designed for speed. This debt must be repaid rapidly, usually within one to three years. Interest rates might be as low as 8%, which is highly beneficial. Short-term loans are popular among businesses in times of crisis when they are used to address immediate financial needs.

3. Business term loan

Working capital, business expansion, equipment purchases, employee expansion, and other business needs can all be met with a business term loan.

Since the 1970s, entrepreneurs have relied on this finance to grow their businesses. The Toyota Corolla, if loans were automobiles, would be these. They're hardly the most glitzy loan around. This product has been a great seller for decades because of its dependability.

4. Startup Loans

You may have to wait at least a year before applying for some types of business funding. A startup business loan is a viable option for startups in urgent need of capital. From SBA microloans to internet loans to business credit cards, a wide range of funding choices is available to small businesses.

Interest rates, fees, loan amounts, and payback terms can all vary widely due to the wide range of options available. You should evaluate different loan choices if you're looking for startup business finance.

5. Business Lines of Credit

Using a company line of credit, you can take out loans as needed and only pay interest on the money you use. Like a credit card, it has several similarities. Upon approval by the issuing bank, you are given a credit limit, which you can then use and return throughout the draw term.

You may lose access to the credit line if the draw term ends prematurely (usually after 12-24 months). The repayment period, which might last up to five years, begins at that point.

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