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What Are Small Business Loans? What Are The Types Of Small Business Loans

What Are Small Business Loans? What Are The Types Of Small Business Loans

How To Get Small Business Loans

Starting up a new business indeed requires the business understanding, skills, passion, and most importantly, a sizable capital. If you are looking for funding, you can try taking small business loans. But choosing the straight type of loan is crucial for the proper establishment of your business at the right time.

Remember, the fees, interest rates, and loan limits vary as per the type of loan you are taking. For small businesses, most of the loans are available online. Once you understand how each of the loans works, you can choose the right small business loan for you. It is crucial to know how each of the loans works. Then, based on their differences and criteria, you can choose the right loan for you. 

In the following article, I have listed all categories of small startup loans to help you find the one you need. But, first, we will start by defining what small business loans are– 

What Are Small Business Loans?

Small business loans are financial products specially made to meet the needs of small enterprises and startup businesses. These kinds of loans are also called commercial loans. Mades. These loans are specially designed for investments in small businesses.

How Do Small Business Loans Work

Loans for small businesses are access to a certain capital that you can invest in a business. You can use this loan–

  • Working capital.
  • Renovations.
  • For Staffing.
  • Buying equipment.
  • Buying real estate properties and more.

The bank assesses the eligibility of your business when issuing you loans. 

They check–

  • The amount of debt your business can handle, 
  • Business condition
  • Available collaterals
  • Cash flow 
  • And the character of the borrower 

Once they verify the eligibility criteria for the loans, they can proceed with issuing the loan to you. 

How To Get Small Business Loans?

Getting a small business loan is not easy. You may have to visit the bank a hundred times. There is no definitive way to gain your loan. However, I have tried to break down the whole process into small steps.

  1. First, you need to understand how small business loans work.
  2. Check out the eligibility criteria and see if you are eligible for a business loan.
  3. Now you have to choose the loan that is right for your business. 
  4. You must check out the terms and conditions of the business loan. Knowing the interest rate and the fees is important.
  5. See if the loan meets the needs of your business plan. 
  6. Apply for the loan.
  7. Wait for it to get approved.

Types Of Small Business Loans

Types Of Small Business Loans

There are several categories of small business loans. Understanding each and every single one of them will help you make the right decision when choosing a business loan. Below are the nine different types of small business loans that you need to check out.  

1. Term Loans

When considering small business loans, term loans are the most common type. When you take a term loan, you get a sum of money that you have to repay over a limited period. You can repay this loan on a monthly basis with fixed interest on top of the principal balance. You can take such a loan for everyday needs of the business or for buying equipment.

2. SBA loans

SBA or small business administration loans are great for small startups looking for low-cost loans backed up by the government. However, these loans require a lengthy application process, and it may take up to three months for you to finally receive the loan. You can benefit from the lower interests of this type of loan.

3. Business Lines Of Credit

Much like credit cards, business lines of credit loans help you with access to a loan with a revolving credit limit. You can use up to the maximum allowance you get and then repay it to use another credit limit. You only need to pay interest on the amount of money that you withdraw. 

4. Equipment Loans

Equipment loans are the best option when setting up a manufacturing facility and needing funding for the expensive equipment. This kind of loan help you purchase equipment with value. In such small business loans, the equipment you buy is held as collateral. 

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types of small business loans

5. Invoice Factoring & Invoice Financing

These loans are the best when you don’t receive payment on time. You can sell unpaid invoices. Through invoice factoring, you can sell invoices that are unpaid to any lender and get a percentage of the invoice value right away. You can use the unpaid invoices as collateral through invoice financing to get an advanced amount.

6. Commercial Real Estate Loans

When buying any property, a new office, or financing an exciting one, you may need small business loans. You can take commercial real estate loans that act like term loans in such cases. This loan is among the best for purchasing an office, a warehouse, retail space, or any commercial property. 

7. Microloans

If you don’t need a lot of cash to start a small business but need a loan, you can check out the microloans. Microloans offer you only $50000; small businesses can easily handle such a small amount of loan. Many nonprofit organizations offer microloans. Even the government offers small business microloans. 

8. Merchant Cash Advances

Merchant cash advances are among the high-cost loans. You need to borrow against the future sales that you will make. You get a lump sum of cash in exchange for a payment from your daily credit sales or weekly bank transactions. Your credit card sales are used as collateral in merchant cash advances

9. Franchise Loans

You can pay the upfront fee for starting a franchise by availing of a franchise loan. This type of small business loan will help you start up your small business and get it running. You can take this loan from a lender; however, other franchises may be willing to give you a franchise loan.

Bottom Line

It may seem overwhelming with all of these options available in the small business loan categories. However, when you understand your needs and assess the loan, its fees, terms, and interests, you can easily choose the loan you need.

As a small business, you can take any loans mentioned here. These loans are categorized based on the needs of different types of small businesses. I hope the information here is helpful to you. 

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