Does your small business need funding but you're unsure of what options are out there? Well, good news. There are many great small business loans available from traditional term loans to alternatives like merchant cash advances. We'll go over everything you need to make the best choice for your business.
Every business owner has been there. You have a big project coming up or an unexpected expense pops up, but you don't have the capital on hand to cover the cost. That leaves you searching for a business loan to get the cash you need. But there's no one size fits all choice. That's why it's so important to learn about all of the best small business loan options out there. We've narrowed it down to the top seven, with options for businesses of all shapes and sizes.
Term Loans
Let's start off with business term loans. A business term loan is what you think of when you hear the word loan. They are long term commitments that are repaid with monthly payments over a set period of time, similar to a mortgage or car loan.
Some of the characteristics that set business term loans apart are high principal amounts, repayment terms between 1-25 years, and lower interest rates, than other forms of business financing.
Term loans are great for businesses that need large amounts of cash for buying commercial real estate or expanding their current operations. They also offer lower payments than other choices, making them attractive to business owners worried about cost cutting into their cash flow.
However, term loans tend to have strict qualification requirements that may prevent younger businesses or those with less than perfect credit from being approved. If this applies to your business, you may need to turn to another option.
Short-Term Loans
This brings us to our next choice, short term loans. Short term loans work the same as their long term counterparts just over a shorter period of time. Common short term loans include high borrowing amounts, repayment lengths below 18 months and slightly higher interest rates than term loans.
Although they still offer better terms than most alternatives. If you need money to purchase inventory, upgrade equipment or hire more employees but don't want to be held down by a long term commitment, a short term loan could be for you.
SBA Loans
Other popular small business financing options are SBA loans. SBA loans are geared towards businesses that don't qualify for term loans with banks.
To give the small businesses access to funding, the SBA actually guarantees a portion of the loan, reducing the risk lenders take when working with small business owners. Interest rates are capped to keep these loans affordable.
The SBA is focused on small business growth in America. So they want small business owners like you to have access to capital. The SBA has several types of loans to fit different business needs.
Through their 7A and 504 programs, the SBA has a solution for all. If you need large amounts of cash for general business purposes, a 7A loan could be right for you. For large fixed assets like real estate or construction equipment, 504 loans make these expensive purchases more affordable.
Now, if you need money fast, SBA express loans can give you funding in weeks instead of waiting months for other SBA programs to push your application through.
Line of Credit
Now let's move on to the most flexible option on our list, business lines of credit. If your business has ever had the need to take out one working capital loan after another to keep up, you can know how difficult that can be.
But what if I told you that there's an option out there that works like a credit card, giving you access to funding when you need it, then letting you withdraw more after you've paid it off. That's a business line of credit.
When approved for a business line of credit, your lender gives you a maximum credit limit. You repay only the amount you withdraw with interest. After repaying the amount you initially borrow, you can withdraw more funding from that credit limit as your business requires. This flexibility makes them a great choice for businesses with ongoing working capital needs.
Equipment Financing
For one time machinery, tools or computer hardware purchases, consider the next option on the list, equipment financing. These small business loans are geared specifically for, you guessed it, the equipment your business needs to run its daily operations.
Equipment Financing lenders offer up to 100% of the value of your purchase, but you'll likely have to pay up to 20% for a down payment. Lenders use the equipment itself to secure the loan. So they can charge you less in interest compared to riskier unsecured business loans.
You can receive Equipment Financing online in just days. This erases the headache of having to wait weeks or months for other types of funding when you need to replace equipment fast.
Accounts Receivable Financing
Now, another common headache for small business owners comes when customers don't pay their invoices promptly. Well enter accounts receivable financing. Accounts receivable financing gets you an advance on the money you're owed by your customers.
Typically, a lender will provide up to 80% of the value of your unpaid invoices. You'll accrue fees until your customer pays. At that point you'll receive the remaining balance of your invoices minus those fees. Accounts receivable financing is a great option for businesses that can't wait 30, 60, or 90 days to receive payment.
Merchant Cash Advance
Speaking of getting cash fast, our final option merchant cash advances, can get you funding within hours. A merchant cash advance or MCA provides funding in exchange for a percentage of your future sales.
Lenders will take a portion of your credit card sales or withdraw money from your bank account until your debt is repaid. These are provided commonly by alternative online small business lenders.
A merchant cash advance is the fastest and most accessible type of small business financing available. They have lower qualifications for credit, time in business, and annual revenue, than other options on our list, opening up access to funding for more small business owners.
Due to the lower requirements the underwriting process is fast. After verifying your qualifications, you can receive an MCA as fast as same day.
Summary
When it comes to what you're looking for when assessing the best small business loan for you, speed may be the top factor, but there are a number of things you need to consider.
Small businesses may be better suited for a long term loan. While you may want an option you can repay within six months, you may qualify for a large amount of funding with the SBA. Others may have to find a business loan for borrowers with less than perfect credit. So assess your situation. Then compare the options from our list and decide which business loan is right for you.
Call To Action
If you need more information on our seven best business loans, plus more on all things small business, check out at Fast Capital 360.
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