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6 Types of Small Business Loans

By March 24, 2020 May 1st, 2020 No Comments

If you own a small business, you know how important reliable capital is to the operation and growth of your venture. With affordable, flexible small business loans, you can access the funding you need for your location, equipment, marketing program or many other needs. Explore the types of available small business loans to find the best option for your company, whether you own a new start-up or a growing concern.

1. Term Loans

This straightforward loan can be used for working capital or to invest in a dedicated area of your business. With a term loan, you will receive the approved funding amount and pay it back on a set schedule with interest.

If you have strong credit, consider a term loan to expand your company, renovate or remodel commercial space, buy another business or purchase real estate in the name of your firm.

2. Small Business Administration Loans

These loans are guaranteed by the U.S. Small Business Administration to encourage lenders to fund the ventures of small business owners. SBA loans provide the most affordable funding outside of a traditional loan. In addition, various SBA programs are offered depending on your needs.

For example, you can use an SBA 7(a) loan to buy a business or access working capital. An SBA 504/CDC loan is designed for real estate purchases, property upgrades, and investments in equipment. SBA loans can range from $5,000 to $5 million and have low-interest rates, but usually require a strong credit history for approval.

3. Equipment Financing

Could your firm benefit from vehicles, machinery, computers, printers, appliances or other types of business equipment? You can purchase these items new or used with a dedicated equipment loan.

Because this type of funding is secured by the equipment, business owners can typically qualify with a lower credit score than required for a traditional term business loan. Expect to see an interest rate between 8% and 30% when you’re shopping for an equipment loan.

4. Invoice Financing

If your clients are other businesses, and you find that your cash flow falters between invoice payments, your company may qualify for invoice financing. This type of funding provides a cash advance on your business’s outstanding invoices, which thus serve as collateral for the loan.

Typically, you can access up to 90% of the invoice amount, with the lender holding the remaining 10%. When your customer repays the invoice, you repay the lender, who takes a fee from this remaining percentage. Invoice financial is often a good solution to fund ongoing operations costs such as rent, utilities, and payroll.

5. Commercial Real Estate Loan

Does your business need a storefront, warehouse, office or other commercial space? You can get there with the help of a commercial real estate loan. Most mortgages for commercial buildings will fund about 80% of the value of the building (a number called the loan-to-value ratio). To qualify, you must demonstrate the ability to come up with the remaining funds. For example, you could access a $160,000 loan for a building worth $200,000 with a down payment of $40,000.

6. Microloan

This type of loan is appropriate for business owners seeking up to $50,000 in funding. In general, microloans have less strict qualification requirements than other types of small business loans and can be used as small business start-up loans, working capital, or equipment financing. The SBA also has a microloan program through nonprofit lenders in the community.

These loans have interest rates of up to 16% and available terms of up to six years.
The team at American United Federal Credit Union can help you find the right funding for your small business in Utah. To learn more about smart business loans and financing solutions that can help you build a bright future for your company, contact us today.

Image Credit: Shutterstock / Drazen Zigic