Understanding Different Types of Small Business Loans

There are a lot of small business loans available to those who need some more money to support their small business. That is why it is important to learn about these different options before you speak to a loan professional.

Popular Small Business Loans

There are plenty of loans to choose from but we will just highlight some of the popular ones! Many people commonly choose loan options like:

  • Business Acquisition Loan
  • Business Term Loan
  • SBA Loan
  • Short Term Loan
  • Startup Loan

Business Acquisition Loan

This type of loan is designed for small businesses that want to buy an existing business. Businesses look to buy other companies when they see that there may be some promising opportunities or want to expand. However, this can be pricey! That is why people turn to business acquisition loans.

 

Individuals can get anywhere from $5,000 to $5,000,000 and the terms vary but are generally for 10 years to 25 years. Funds from these loans can usually take a month to reach your account. Interest rates will vary based on your lender and financial situation.

Business Term Loan

For businesses that want to expand their business operations, buy equipment, hire more staff, etc., should consider a business term loan. These loans have always been a great option for owners who want to ramp up their businesses. These loans range from $5,000 to up to $2,000,000. Unlike a business acquisition loan, the money may be able to be in your account after just a few days. Business loan repayment terms vary depending on your lender but are generally between 1 to 5 years.

SBA Loan

A Small Business Administration (SBA) loan is a government option that has a history of being helpful for small business owners. SBA loans can provide business owners up to $5,000,000 and terms typically range from 10 to 25 years. However, these loans can take a long time to see the funds and usually require a lot of paperwork. There are different SBA loan options available:

  • 7(a) Loan
  • 504 Loan
  • Express Loan

SBA 7(a) Loan

This is one of the more popular loan options from the SBA because it can be used for a variety of purposes. Depending on the amount you need, your lender may not require collateral. Generally, the more expensive the loan then the more collateral you will need to provide.

SBA 504 Loan

Businesses that need to fund projects tend to choose this loan. Projects can include buying a property for business, making a building, etc. However, not everyone will qualify. Only businesses that have a networth of at least $15 million and average net income of $5 million will be considered for this type of loan. These loans come with fixed-interest rates so they are especially popular for those who qualify.

SBA Express Loan

Individuals who want a loan quickly tend to choose an SBA Express loan. These loans can finance up to $350,000. The time frame for this loan is quicker than other loans so the application review could happen in as soon as 36 hours.  However, you should still expect to receive the funds in around a month.

Short Term Loan

For those that want a speedy loan then a short term loan is another great option to consider. People can receive money in as soon as 24 hours! However, they only provide up to $500,000 and repayment terms are generally between 1 to 3 years. Interest rates vary based on your financial situation and lender! Funds from these loans are typically used for unexpected expenses, low points in the business, etc.

Startup Loan

For people who want to start up their small business then they may benefit from getting a startup loan. These loans help people fund the process of actually starting their business. Funding for this loan can be as low as $500 all the way up to $750,000. The funds from this loan can usually hit your account within a few weeks.

How to Get a Small Business Loan

If you are interested in getting a small business loan then you can break down the process into 5 simple steps.

Step #1: Get Your Information Ready

Before you begin looking for a loan, you will want to have your information ready. Information like your credit score, financial information, proof of identity, and more should be prepared before you start looking. This can help you better navigate your options! Documentation you should try to have ready include:

  • Tax returns
  • Bank statements
  • Financial Statements
  • Business legal documents
  • Business plan
  • I.D.
  • Social Security Number
  • Employer Identification Number (EIN)

Step #2: Figure Out Your Budget

Now  that you have all of your information together, you will want to figure out your budget. What can you afford?  Can you handle monthly payments? Understanding what your limits are can help when you are looking at different loan options available for your situation. You will also want to figure out your collateral, if any. Some loans may require you to provide a collateral so knowing what you are willing to put up can make the process easier.

Step #3: Figure Out the Type of Loan You Need

There are a variety of loan products available that may be able to help your current situation. That is why you must figure out why you are trying to get a loan. Do you want to start your business? Do you want more money to manage your day-to-day operations? What if you want to grow your business? Your reason will help you understand what loan types you will want to consider. If you don’t know what loan type would be best then you can speak to a lender or other loan professional  to see what may be beneficial for your situation.

Step #4: Find a Lender

Now that you know all of your personal information, have your documentation ready, and know which type of loan you want, it is time to find a lender. There are a bunch of lenders that are available! That is why you need to compare your options. You may want an online lender, a traditional financial institution, or even a microlender. It’s up to you to review the options!

Step #5: Apply for the Loan

Now that you have your documentation ready, you know which loan you want, and you found your lender, it is time to submit an application. The application process varies depending on your lender so what you need to do will depend on where you go to get the funds!

Overall

There are plenty of funding opportunities for small businesses. The list in this article only scratched the surface! That is why research is important when it comes to finding loans that can best help your business. If you have any questions you should speak to a loan professional to see what opportunities would be the right choice for your situation.