Five Small Business Loans Explained


A business loan can be used to grow your business, increase your inventory, or keep your operations running during a financial downturn.

There is a multitude of loans available to fund your business, and it’s critical you understand the benefits and drawbacks before applying. Not all business loans are going to suit your specific needs, so it’s important to do a great deal of research. Consider how much you’ll need to borrow, what you’ll spend the money on, and how long it will take you to pay back the funds. This information will help you determine which loan type you should pursue.

Short-term and Long-term Installment Loans

An installment loan is a loan that’s repaid over a set period of time. This type of loan can be taken out as an individual or as a business, and can be used for any reason. Monthly installment loans are easy to apply for and offer a simple repayment schedule. Plus, you don’t need a down payment. The benefit of installment loans is they only require basic eligibility requirements, so you don’t have to provide details about your business if you don’t want to. The set lifespan allows you to easily pay down the debt, but these loans often carry higher APRs than commercial bank loans.

Commercial Short-term and Long-term Loans

Commercial loans are the most common loan type. They’re distributed by commercial lenders, such as banks or credit card companies. The payments are made on a monthly basis and the interest is dependent on a number of factors, including your credit worthiness and the length of the loan. Long-term commercial loans typically have a lower interest rates than short-term loans.

Small Business Loans (SBA) Loans

SBA loans are government-backed loans provided to small businesses. There are a few types of SBA loans, including the 7a General Small Business Loan. The 7a loan is the most common SBA loan and can be used for a number of business needs, such as working capital and refinancing debt. If you’ve suffered a natural disaster, you can receive an SBA Disaster Loan, which helps businesses recover from the financial difficulties and physical damages the disaster caused.

Lines of Credit

You can opt to open a line of credit instead of taking a lump sum. Like a credit card, you can use funds as needed. You’re only charged interest on the amount you spend, but the compounded interest is often higher than that of a traditional fixed sum loan. The key to business growth post-loan is management, so make sure you’re only spending what you absolutely need and that you have the funds to pay back what you borrow.

Alternative Loans and Financing

A bank isn’t the only way to secure the funds your business requires to continue functioning. You can seek out alternative financing, which includes but isn’t limited to peer-to-peer loans, investors, leasebacks, and crowdfunding. Crowdfunding doesn’t typically require that you pay back the funds you receive, but you will need to use the funds to further your business.

When choosing a loan, the most important thing you can do is research. Research all of your options, research the lender and research how much the loan will cost you in the long run. You absolutely must have the means to pay back the loan; otherwise, the bank may end up owning your business. Only a quality loan can help you fund your business; a non-quality loan can sink your ship faster than not securing a loan would.

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