With many jobs now going remote, and the internet makes connecting easier than ever before, many are turning toward their side hustle to take them to the next step. If done successfully, an earnest hobby can blossom into a wonderfully bustling small business. However as business increases and it’s time to take the next step, getting the assistance of a small business loan is an option that can open many doors for you and your company.
When selecting a small business loan for your startup you should be aware of all the ins and outs, to better outline your dos and don’ts. Here are five types of small business loans to take your business to the next level.
Startup Loan
Diverse, Fair Funding, Long Term
If your business is a ship just starting its voyage then the humble ‘startup loan’ is that perfect wind guiding your sails in just the right direction. These loans are all fairly specific to the individual and the nature of their business. There are numerous types one should seek out to better specify your business’s particular setup. This gives the borrower the power to fit the loan into whatever box they need.
The loan is built for novice businesses, offering loans from the low hundreds to a modest hundred-thousands. Think $500 – $500,000. The money is often available within one to two weeks, with interest rates running anywhere from 0-17%. These are often spread long term – think 20-25 years.
Business Line of Credit
Flexible, Short Term, Revolving
You’ve been in business for a couple of years, you need a slightly deeper baseline to either expand or weather the current climate and your funds are humble. You are a prime candidate for a business line of credit.
A ‘business line of credit’ covers anywhere from $1,000 – $500,000 on a revolving credit. This means that as opposed to a lump sum given to you, you have permission to dip into the loan’s allotted amount as much as you may need.
Typically this line has a 1-2 year maturity. Given that these loans are granted after two years in business, you need a certain amount of stability. Most lenders require a credit score of around 680, although a score of 580 can earn you this loan with the right lender.
Business Acquisition Loan
Targeted, High Ticket, Long Term
This loan has one purpose: buy into an existing business or franchise. Let’s say you love Chick-Fil-A, eh, Burger King – this is a fantasy, and you have no building, no license, and essentially no funding. This loan is for you.
The ‘business acquisition loan’ will let you seize that opportunity. This loan drops anywhere from $5,000 to $5,000,000 on your doorstep in around a month. And with a common 5% interest rate on the 10-25 year payment, you won’t be struggling while paying back the lender. This type of loan usually comes in several forms.
These are set-targeted loans intended to calmly let you buy a business’s assets, buy your way into a franchise or even acquire a whole company entirely. Having only a typical 15% down this loan can bring an entirely new scope to your business horizons.
Small Business Administration Loan
Slow, Modest Funding, Respectable Terms
An SBA or ‘small business administration’ loan is served to a small business, generally with the outlier of some special condition or requirement. They serve a fair range of funding and maturity rates. Funds go from that $5,000 – $ 5,000,000; with an average of $417,316 for the SBA 7(a) loan type. The benefit of this type of loan is that the SBA serves predominantly as an agency, and will add a layer of security between the borrower and lender.
The most common form of the SBA is the SBA 7(a). It can be used in many ways and has a deep range of funding, some going as low as $25,000 with minimum requirements. 7(a)s are often the most common. Additionally, an SBA 504 can be used for higher dollar loan amounts ($125,000 – 10,000,000). A 504 is often used for a particular business’s major projects or similar ventures.
The standard SBA involves lots of intense paperwork and can take up to several months to hit your pocket. This can be avoided with an SBA Express Loan that can have the paperwork filed in as little as 36 hours, however, even then the money may still take a month to hit. While often convoluted in their process an SBA does add security and extra reach for the disadvantaged business.
Short Term Loan
Fast, Small, Short Term
Need money quickly? Just how quickly? In the time it took you to put a timeframe to that question you could already be filling out the application for your ‘short term’ loan. And if that aforementioned hypothetical timeline was extremely detailed you might have already been able to submit that application.
Short-term loans happen fast. As soon as that submitted application is approved you can have up to $500,000 dollars in your hand in less than a day. That’s right, 24 hours. Typically you pay off short-term loans in 1-3 years. They have interest rates that can start as low as 8% but can climb very high depending on the lender.
Use short-term loans responsibly, to help shoulder pressing financial issues in a crunch. Examples could be your equipment breaking or needing to hire another employee to reach a looming deadline.
Business Term Loan
Reliable, Modest Funding, Modest Terms
If we were doing a vision exercise and asked ‘what is a loan?’ It’s likely that the ‘business term’ loan is the one that would come to mind. A lump sum (5,000-3,000,000), that you pay back over approximately 10 years, through set periods with interest. Not flashy, and has very little accounting magic. Most lenders tend to offer a flat rate of interest at a set pay period that does not change.
Use these loans for everything from setting up a second location, to a remodel, to purchasing equipment. The basic idea is, this is all you have. This is how much you need to give and how often you have to give it back. Think of this as a clear-cut option for the entrepreneur with a clear plan. Plus, the resources to make it happen.
Overall these loans can vary greatly in amount and terms from lender to lender. So it’s important to know your business and fetter out the circumstances and options that best suit your particular business and funding. While they are all tailored to specific needs, there is overlap in which you use and what you use them for. Think about what you’re trying to accomplish, how quickly you need the money, how much you need, and how much you can realistically pay back at the set period.