So, you are in pursuit of opening your own business. There is a product or service that you want to make available to people in the world. Opening your own small business is a worthy and rewarding experience. But it is also expensive, especially in the beginning. So, you will want to consider a small business loan to ensure your small business starts strong. But which one will work best for your business? There are several types of small business loans that you should consider before applying for one.
Small Business Line of Credit
The first is a small business line of credit which is comparable to a credit card. There is only a certain amount you can borrow, and you only pay interest on the amount borrowed. By taking out a line of credit, you can take out funds as needed and then pay it back as often as you would like for as long as you want. You will need to ensure you never go over your credit limit.
SBA Small Business Loans
Another loan is the SBA small business loan, which is guaranteed by a federal agency known as the U.S. Small Business Administration. To apply for a sba loan means that you are guaranteed the SBA will pay out if you are unable to make payments to your lenders. In addition, their agency ensures that entrepreneurs’ businesses will expand.
Accounts Receivable Financing
Accounts receivable financing, also known as factoring, involves selling your outstanding invoices or receivables to a lender. This way, you can get your payment early. This type of loan is beneficial because of the quick access to cash. However, there is a chance you will pay more for this type of financing, especially if your business’s credit score is lower.
Small Business Term Loans
If you apply for a small business term loan, you will get a lump sum of capital that you will have to pay back at a fixed interest rate. It is common for these loans to be paid back in five years. A small business term loan is ideal for those who need to fund a specific investment for their business. These loans also follow an amortization schedule, which means most of your payments will go toward the interest accrued in the beginning,
Working Capital Loans
Unlike other small business loans where you pay long-term, working capital loans finance the everyday operations of your business. This includes essentials such as payroll, rent, and debt payments. They usually have lower amounts and shorter terms. A working capital loan is also linked to your personal credit score at times, which can be detrimental if you do not make on-time payments.
Equipment Loans
If you require some equipment to help your small business run smoother, or the equipment you have is old or broken down, then an equipment loan can help. For example, if your business is connected to healthcare, you may need infusion pumps or X-ray machines which an equipment loan can help you purchase. These loans require less documentation than others and the funds arrive quickly.
Small Business Credit Cards
Finally, there is also the option to open a small business credit card, similar to getting a personal credit card. However, there are a few differences. For example, a small business credit card has a reporting feature so you can more easily track your spending and categorize where your money is going. There may also be a rewards program that will be beneficial to your small business’s expenses, such as office supplies or marketing services.
Any of these small business loans can prove to be beneficial to you. There are a number of different ways to apply for these loans too. You can apply through large commercial or community banks, direct online lenders, or peer-to-peer lending sites. Either way, choosing the small business loan that will be the most profitable in the end.
