20-Minute Guide to Loans for Small Businesses

Hundreds of financial institutions including local banks and credit unions have numerous financing products can help small business owners. However, you often hear stories about not qualifying for small business loans. Often, this is the case because applicants did not understand the nature of the loan or financing product that they are applying for.

1) Traditional Term Loans

A term loan is a lump sum loan that you will pay back with interest over a period. Generally, borrowed money can be used for any business purposes; however, getting a term loan from a financial institution can require great credit and business history.

2) Traditional Short-term loans

A short-term loan is like regular term loans, except you will have to pay back over a shorter term. Typically, terms for short-term loans range from 3 to 18 months.

3) SBA Loans

Small Business Administration (SBA) is a US government agency created to help small businesses in US. SBA Loans are flexible term loans that are secured by the SBA. SBA loans are available through banks and lenders, not the SBA itself. There is a SBA Lender Matching Program, formally known as LINC, to help you find SBA lenders. Learn more about SBA Lender Matching Program: SBA Lenders.

Within SBA Loans, there are several SBA loan programs you can apply for: a) 7(a) Loan, b) Microloan, c) CDC/504 and d) Disaster Loan. There are specific qualifications and requirements for each program. Learn more about SBA Loans at: SBA Loan Program.

4) Business Line of Credit

Business Line of Credit (or known as LoC) works like a credit card with an established interested rate. Generally, business line of credit is a revolving line of credit that you can access at any time if you subscribe this service at your bank for a monthly fee.

5) Equipment Financing

Equipment Financing is only applicable when you are borrowing to purchase a new or used equipment/machinery. Generally, the equipment/machinery becomes a collateral for the loan. The equipment/machinery must be for business use only.

6) Invoice Financing

Invoicing Financing is also known as Accounts Receivable Factoring. Certain financial institutions provide this financing service. It works like a short-term loan with outstanding invoices as a collateral. Instead of interest over the term, you will be charged factor fees as the invoices go unpaid.

7) Merchant Cash Advances

Merchant Cash Advances are only provided by merchant capital companies. Merchant capital companies provide cash up front with an arrangement that you will pay with your business' daily credit and debit card sales. This is a good option if you cannot borrow through traditional financing options due to poor credit history; however, this option tends to be very costly.

​8) Business Credit Cards

Business credit cards are not considered as a loan but the most typical financing option that small businesses choose. You can tap in to special offers like zero percent introductory interest rate to finance business transactions to relieve cash constraints. ​Also, you can build business credit history and earn rewards by using business credit cards.

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