Almost all small businesses may need additional financial assistance at some point. Corporate financing options such as corporate loans allow entrepreneurs to obtain working capital while still having complete control over their businesses.
Finding the best financing for your business depends on your business’s specific financial needs, how your business uses funds and how quickly you need to access working capital.
Each type of loan has its eligibility, requirements, fixed interest rates, and terms. So, if your business is looking to increase cash flow, purchase equipment, expand, or hire new employees, there are small business loans that meet your specific business needs.
Small business loans
To help you learn more about the financing options available to your business, we’ve compiled a comprehensive list detailing the six most popular small business loans.
Term loan
A term loan is a financing option that provides a lump sum payment of working capital to a business for a pre-determined amount and payment date. Once a specified amount of funds is approved through a small business term loan, the funds are deposited into your business’s bank account for immediate use. Short-term and long-term business loans are available for small businesses seeking financial assistance.
- Long-term loans generally require higher creditworthiness, income, and time spent in business than short-term loans.
- Long-term loans are typically 5 to 10 years, and short-term loans are 3 months to 5 years.
- Long-term loans are typically offered to businesses through banks and other financial institutions, while short-term loans are available from other lenders and online.
Term loans typically offer lower interest rates than other financing options but can have more stringent upfront requirements such as collateral, the time required to do business, and annual income.
| Pros
• Loan amount increase • Loans are quick (when using online lenders) • Predictable payment schedule |
Cons
• Potentially higher costs • Strict repayment plan • Stringent eligibility requirements • A guarantee may be required
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Term loans can be used for various business needs, such as expansion plans, restructuring/ remodeling, and ongoing working capital needs.
Asset-Based Loans
Asset-based loans allow small businesses to access working capital using assets as collateral. This allows small businesses to receive lower interest rates as the loan is protected by commercial assets making it a low-risk transaction—the more liquid the asset, the safer the loan. Typical assets used as collateral are inventory, receivables, property, or equipment/machinery.
| Pros
• Expedited application • Financial stability • Rapid funding |
Cons
• Assets at risk • Lower loan limits • Potential additional costs |
Asset-based loans can be ideal for new and growing businesses, especially if they struggle to secure traditional financing methods.
SBA loan
The US Small Business Administration (SBA) is a government-funded agency that provides government-guaranteed loans through partners, such as banks and lenders, that can distribute funds when capital is needed. The Small Business Administration helps small businesses that may not be able to obtain financial assistance elsewhere.
SBA loans are repaid monthly on flexible terms. However, there are strict criteria, and businesses must meet specific requirements to qualify how to operate as a commercial enterprise and keep up to date with all government loans.
| Pros
• Long repayment period • low fees • Wide range of loan amounts |
Cons
• Difficult to qualify • The long and demanding application process • Long approval times • Possible down payment requirements
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SBA loans are best suited for companies with more secure credits that can wait longer for funding. SBA loans are ideal for those looking for the initial capital to expand their business or purchase real estate.
Commercial real estate loans
Commercial real estate loans provide access to working capital for businesses to purchase new commercial properties and refinance or renovate current commercial properties. A loan is a mortgage secured by a pledge of commercial property. This type of loan is for commercial properties only, not residential properties.
| Pros
• Access to large amounts of funds • Long repayment period • Retain business ownership |
Cons
• Default hard results • Extensive application process • The initial cost can be high • Stringent eligibility requirements |
Commercial real estate loans are suitable for businesses looking to finance the purchase or development of buildings, stores, offices, or other commercial real estates.
Business line of credit
A Line of Credit (LOC) is a flexible financing option that allows small businesses access to working capital as needed. This is an excellent option if your business can get a smaller loan.
Once your business is approved for a certain amount, your business can withdraw that amount as many times as needed and only pay a commission on the outstanding balance. A business line of credit permit you to withdraw your working capital when needed rather than withdrawing it all at once.
| Pros
• Equalize cash flow • Flexible funding options • It may help build corporate trust • Pay only for what you use in your business |
Cons
• Additional costs may apply • Can be expensive • Lower loan limits • Stricter eligibility requirements |
The small business line of credit is ideal for businesses that want flexibility for their short-term funding needs. Businesses can use LOC to help with payroll, build pillows, cover cash flow gaps, or manage unforeseen emergencies.
Bridge loan
Bridging loans are short-term loans that provide quick access to working capital when a company seeks to secure permanent financing. This allows businesses to access lump sum payments of funds during the gap between long-term loan applications and approvals.
| Pros
• Flexible payment and terms • Provides a safety net • Quick access to funds |
Cons
• It can only be used for very short periods • Generally, higher costs and fees • Potentially high payments |
Bridging loans are ideal for businesses that need to leverage pending long-term financing to purchase real estate, expand their business, or manage cash flow.
Conclusion
Small business loans provide flexible access to working capital through various loan options. Understanding the different loans available and how they work best for your business can help you make an informed decision about the best lending product for your small business needs. Whether you’re looking to expand your business, increase your cash flow, or cover your paycheck, a business loan can help fund all these ventures.