Business Loans: Do You Know Your Options?
When it comes to business financing, you should know there are several forms and shapes for small businesses. Business loans are one of the most accessible options for established and new businesses alike. If you have a loan, you have the ability to borrow a lot or less, for any purpose necessary with the least obstacles on the way.
Depending on the lending avenue you choose, applying and the process of obtaining a business loan is something that could take you just a few days.
With many business loan options to choose from, it is important that you choose the appropriate financing for your business. As you read on below, you will get to know about common loans and the best one you can choose.
SBA Loans (Small Business Administration Loans):
This business loan is suitable for established businesses and startups that need to expand their business. It is appropriate for all those business owners who have trouble qualifying for the standard bank loans. In the financing world, the small business administration offers various loan programs to other small business owners.
For example, a 7(a) loan is good if you need a long-term working capital to finance your equipment or inventory purchases, buy real estate, cover construction costs, renovate an existing property, or refinance your existing business debt. Depending on what you use the loan for, the repayment terms could last for about 25 years.
Usually, the microloan program that lenders like Orumfy provide is about $50,000 in financing in order to help small businesses expand well. Just like a 7(a) loan, it is required that you give the lender to form some collateral as well as personal guarantee.
Often the maximum repayment term is about 6 years for a microloan. This loan type also guarantees loans for various large-scale equipment or estate purchases. The 504 loans are for businesses that need to borrow about $5 million with a tangible net worth of less than $15 million. The repayment terms may extend to about 20 years and the assets you finance at collateral.
In a summary,
- Amount = $5,000-$5 million
- Term = 5-25 years
- Interest = Starting at 6.5%
- Speed = As little as 3 months
This is ideal for business owners that need some short-term financing to cover all their cash flow gaps. It is for businesses with enough collateral, who wish to borrow larger amounts and pay for expansion plans or purchase inventory and equipment.
For most business owners, term loans are one of the most straightforward lending options. From the borrower, you borrow some lump sum amount, which you have to pay back over a specific period, with either a variable or a fixed interest rate. In general, term loans could be either secured or unsecured and some form of collateral is necessary when you need a longer repayment term or a larger loan.
Short-term loans are suitable for businesses that need to borrow smaller amounts and they are equipped to repay them relatively quickly in about 18 months or even less.
Note that qualifying for this type of loan is somewhat difficult rather than getting a long-term loan as long as you have a strong personal credit score. Since the interest rates may be higher, there is a trade-off.
Long-term loans offer higher borrowing limits as well as lengthier repayment terms, and sometimes to about 20 years.
In a summary,
- Maximum amount = $25,000 to $500,000
- Term = 1-5 years
- Factor Fee = 7-30%
- Speed = As little as 2 days
Merchant Cash Advance:
This is best for established businesses that have steady credit and debit sales, which need quick funding but they lack collateral or credit score necessary for a standard loan. A merchant cash advance is not a loan per say, however, is a way for businesses to access capital within a short time.
The idea is simple; the provider of the merchant cash advance will advance you with some set amount of money, which relies on future debit and credit card sales. You can pay the amount of money back when you remit some percentage of debit card or credit card revenues.
Although merchant cash advances with convenience, this often comes with high fees and interest rates. The providers often use a factor rate, which they use to set the fees as well as determine the actual amount of money you will pay back.
In financing, this is one of the most expensive options when it comes to borrowing. The more the debit or credit card sales your business generates in a day, the higher the APR will climb. It is possible for the interest amount you pay to reach a triple digit range, and you have to weigh the cost well before you choose the merchant cash advance.
In a summary,
Maximum Advance Amount = $2,500-$250,000
Term = Deducted from your merchant account each day, automatically
Factor fee = 1.14-1.18
Speed = 1 week
For further information on the other options available in business loans, it is best that you consult a bank or a loan provider in your area. Evaluate your options well and choose the appropriate financing option for you and your business.