If you plan to start a new venture or consider growing an existing one, having the necessary financial support is vital. This is where applying for a pre-approved small business loan can come in handy. Many business people and entrepreneurs opt for small business loans as a feasible solution to obtain the required funds needed to grow their businesses. These loans are relatively easy to get approved, allowing business people and entrepreneurs to grow their business ventures without offloading ownership.
Here we will list the different types of loans available to the general public. You can go through it and find the one that might be the best fit for you. But before that, it is important to understand what small businesses are.
What is a Small Business?
Generally, a small business refers to a company with fewer than 500 employees. They are mostly privately owned and work on a smaller scale. These businesses are commonly known to provide goods and services to a small consumer group and tend to have a more personalized approach to customer service.
What is a Small Business Loan?
Loans, by nature, are difficult to get. A small business loan is financing provided to small businesses or small business owners by banks, credit unions, or other financial institutions.
Businesses need loans for a variety of reasons, such as:
- Purchase tools or inventory for production
- Open new business branches
- Cover operating expenses during slow periods
- Cover marketing and advertising expenses
- Hire new employees
- Pay short-term contractors
- Fund research and development for a new project or product.
It isn’t uncommon to see some financial institutions requiring the applicant of the small business loan to put up their property or a personal guarantee for collateral. Small business loans’ exact terms and conditions vary from one lender to the other, as well as the type of loan.
What are the Types of Small Business Loans?
It is possible to obtain small business loans in several forms. Some of the most common types are:
Term loans –
This is the most common type of small business loan. In a term loan, you receive the loan in full at once. Usually, these loans are repaid every week or month over a fixed period. The most common use of term loans is to cover smaller daily expenses.
Small business administration loans (SBA loans) –
An SBA loan is available to business owners at a relatively low cost. The government backs a portion of SBA loans (85% of loans up to $150,000 and 75% over $150,000). This allows smaller businesses to acquire funds with less equity than traditional loans. It is important to note here that it is not the federal government but the bank that provides the capital. The small business administration only guarantees a certain percentage of loans in case of default.
Getting approved for an SBA loan can also take a long time, which is one of the major disadvantages. Many financial institutions may also refuse to accept it. It can take up to three months for the loan to get approved. These loans are also handled by SBA-approved lenders, mostly considered non-traditional banks. This type of loan is most suitable for business owners who only need funding after some time.
Equipment loans –
As the name entails, equipment loans are loans used to help small businesses purchase and replace existing tools and equipment or buy new equipment as the business grows. These types of equipment usually comprise everything from machinery, furniture, and tools to vehicles like trucks and vans, kitchen equipment, etc. Regarding equipment loans, the products you buy serve as collateral for the loan.
Invoice financing –
Small businesses that find it difficult to get timely payments from their customers can rely on invoice financing to get capital upfront while they collect fees. In short, it is an avenue that businesses can take to borrow money against the amount due from their clients and customers.
Businesses can use invoice financing to improve cash flow, cover employees’ and suppliers’ expenses, and use the funds to reinvest in operations earlier rather than wait for their customers to pay their balances in full. Invoice financing is different from invoice factoring, where businesses sell their invoices to factoring agencies in exchange for a fixed portion of the invoice value.
It is important to note that banks are less likely to offer invoice financing compared to other types of small business loans on this list. It can be a very costly option, especially for businesses whose clients need to make their payments on time. It is also limited to B2B businesses.
Commercial real estate loans –
These types of loans can help small businesses finance the property where they conduct their business operations. These properties can include office spaces, warehouses, and retail spaces. This type of loan is useful if you plan on using your office space long-term.
It is important to understand here that real estate becomes an equity asset that your business holds because you’re utilizing the loan to purchase it. It means that if you can’t afford the entire structure, your landlord could decide on renting the remaining space as, say, a “condominium” by subdividing it and letting you purchase only your area.
Microloans –
Some small businesses are different. While some companies have been operating for years, if not decades, others are starting. A microloan is a small business loan that provides up to $50,000 for your small business. This type of loan is tailor-made for entrepreneurs who only require a small amount of capital.
Government lenders and non-profit organizations frequently provide SBA loans and microloans. Obtaining microloans also requires some form of collateral. These types of loans also cannot be used to finance pre-existing debts.
Frequently Asked Questions
How can I qualify for a car accident settlement loan?
Correctly known as car accident lawsuit funding, car accident settlement loans can help you cover your bills and make new purchases. However, the word “loan” here is misleading because the fund that you receive isn’t a loan by law. Apart from a few states, these funds aren’t subject to lending laws.
Unlike car insurance or car accident loans, car accident settlement loans aren’t dependent on your credit score. So having a bad credit score will ensure you apply for and receive the funds. You don’t need to provide any collateral or proof of employment to apply for the fund. Qualifying for a car accident settlement loan is pretty straightforward. Here are a few key points:
- You must reside in a state where the only legal finance option for a car wreck case is car accident settlement loans.
- You are entitled to compensation for your injuries or damages if you were not at fault for a vehicular accident.
- You seek advice from a car wreck attorney on a contingency basis, so the lawyer only receives their payment if you win or the case gets resolved.
Once you meet these three criteria, you should be able to acquire a car accident settlement loan without any hassle.
How much can I get from a multifamily loan?
You might see a multifamily property marketing advertisement while browsing several real estate websites. A multifamily property is a great option to get your family a new place to live or move in with a group of your close friends or co-workers.
Opting for a multifamily loan is a great option for people looking to finance the purchase of a new property containing more than one housing unit. Some examples of multifamily units are duplexes, a townhome, student housing, mobile home parks, or apartment complexes. The terms can also range from anywhere from five to twelve years.
Most multifamily affordable housing loans begin at $750,000 to $1 million with a fixed interest rate of up to 80%. Nevertheless, these loans have very strict eligibility requirements. Those who qualify for it, however, have a great option.
