There are several kinds of business loans, and they all offer business owners something different. The best small business loans for you will depend on your unique circumstances. It’s advisable to have at least a few passive financing options at your disposal. These include lines of credit and credit cards. Beyond that, understanding your options is always helpful when you need financing to help your business grow
Here are some of the most useful and common options available.
The Best Small Business Loans
Business term loans are as simple as personal term loans. You apply for a lump sum of money and come to an agreement with the lender. Once you’ve agreed to the loan and qualified for it, you will receive the money and have to start making repayments.
The terms on these loans vary greatly. You can get a short-term loan with terms lasting less than two years, or you can get a loan with terms lasting 25 years. There are many options in between.
Term loans are typically used for large purchases or single, large projects. They can be used to get a new truck, or to finance a major expansion at your business. As such, they are very generic, but they still aren’t always the best option.
Small Business Administration (SBA) loans offer some of the best terms you can find. They are not given out by the SBA. The SBA just sets the standards that SBA lenders must adhere to.
SBA loans are provided by reputable institutions that work with the SBA. Just keep in mind that these loans are often much slower to process than other business loans. While banks aren’t the fastest lenders anyway, you can expect to wait a while.
Business Lines Of Credit
A business line of credit is a large pool of money you can draw from whenever you need to. You apply for a line of credit similarly to how you would apply for a business term loan. Once you’re approved, you will be given access to the pool.
With a line of credit, you have more control over your financing. You can leave the pool alone while everything is going well. Then, when you need to pay for a sudden expense and don’t want to use savings, you can draw funds from your line. From that point on, you will have to pay the lender back according to the terms you agreed to.
Lines of credit are a great passive financing option. In many ways, they are comparable to a credit card. They are best used to have an option in case of an emergency. They are also a good option when you expect constant expenses and aren’t sure if you’ll always be able to pay for them immediately.
Invoice factoring works a bit differently from normal business loans. The idea is that you sell your invoices to a third party (a factor) at a discount. The factor then pays for the invoice in a lump sum and gets paid back when your customer pays you. This should usually happen anywhere from one to three months later.
Invoice factoring is a good way to get cash fast when you need it. As such, it’s good for working capital. This method also never requires collateral, so there’s often less risk involved.
On the flip side, invoice factoring is expensive. It usually carries extra fees, and the cost per invoice is fairly high. It’s still a good option in many cases, unless your customer fails to pay you. In that case, you will face higher APRs and often even more fees.
Business Credit Cards
Credit cards aren’t just for individuals. Business credit cards come equipped with higher credit limits and unique benefits for business owners.
Similarly to personal credit cards, business credit cards offer personalized rewards. They also offer a method of protection for when sudden expenses arise. Like business lines of credit, a business credit card’s expenses arise when you decide to pull funds. Apart from that, you only need to pay a flat annual fee to have one.
The downside to business credit cards is that they are often quite expensive to use. Finding the card the offers you the right rewards and benefits can help offset this cost.
This option is quite similar to invoice factoring. The difference is that instead of actually selling your invoice, you just use it as collateral for a cash advance.
Invoice financing offers you a lot of convenience. Your invoice is guaranteed in most cases. Only should your customer fail to pay you will you run into a serious problem.
The main downside to invoice financing is that it’s expensive. Pay attention to the terms so you know what you’re paying if you choose this option.
When Looking For The Best Small Business Loans…
These are not all of the loan types available to you as a business owner. They are, however, a few examples that should cover most situations.
Remember that many of these loan categories can be broken down further. For example, you can find specific lines of credit for non-profits. You can also find business term loans for specific types of work vehicles. It’s best to narrow your search down before you look for a specific lender. By doing so, you can make sure you get the best deal possible.