Securing adequate business financing is crucial for small businesses’ survival and growth. These loans often provide the means for success. Fortunately for small business owners, there are different loan options available. Explore some of the most common loans for small businesses.
Why Do Small Business Owners Seek Financing?
Owners seek loans for small businesses for a wide variety of purposes, including business expansion, equipment purchases, marketing and advertising, business franchising, commercial real estate purchases/remodeling, business acquisitions, inventory purchases, funds to support cash flow, payroll expenses, and debt consolidation. Additionally, funds are frequently sought to fund startup costs and to weather unexpected financial challenges. All of these are common and valid reasons to seek financing.
As a business owner, you will likely need financing at some point during the lifespan of your business. Borrowing money in business doesn’t have to mean your business is struggling. Sometimes you just need a little extra to help your business get to the next level!
The 9 Most Common Types of Loans for Small Businesses
Here are the nine most common types of loans for small businesses:
- Conventional term loans. Term loans are typically offered by banks, credit unions, and online lenders and are used to cover various business expenses.
- Lines of credit. This type of funding is like having a credit card but with much larger expenses. With a line of credit, the borrower has a set credit limit and a draw period within which to borrow money. The borrower can borrow, repay, and borrow again within the draw limit and draw period.
- Merchant cash advance. This is a short-term business loan typically offered by online lenders. The amount of funding that can be received is based on the business’s credit or debit card sales.
- Invoice factoring. With invoice factoring, a business uses the amount due from its customers as collateral to cover gaps in cash flow. In this approach, the business sells invoices to a factoring company for a lump sum in exchange for a percentage of the total invoice amount. When the customer pays the invoice, the lender sends the business the remaining amount, minus fees and interest.
- Invoice financing. This approach uses a company’s accounts receivable as collateral for an advance.
- SBA loans. Several types of SBA loans, backed by the Small Business Administration, are available. They offer competitive rates but come with a lengthy application process.
- Microloans. These loans are designed for growing businesses and are offered in small amounts, from $1,000 to $50,000.
- Equipment financing. Equipment financing provides loans that are secured by the property that is purchased.
- Commercial real estate loans. These loans are typically available from banks, and the funds can be used to purchase or lease commercial properties.
Loans for Small Businesses–How to Apply and Get Approved
First, carefully determine how much you will need and for what purposes. Second, review your credit history and score. In many cases, lenders will look at both personal and credit information. Third, research your loan options. Decide what type of loan you will need. Fourth, examine each potential lender to find one that best meets your financing needs. Review their business reputation and examine their services. Understand their loan qualifying requirements. Fifth, gather the required loan documentation. Sixth, apply for the desired loan.
Seek Expert Business Financing Assistance
Contact CAB Capital, based in Mt. Pleasant, SC. We offer small businesses custom-matched financing solutions that can be faster or more flexible than other financing solutions. We have access to a vast suite of more than 150 products from a group of 67 different lenders to ensure you get the funds and the terms you are looking for.