At some point in time, almost every small business may require extra financial assistance. Utilizing business financing options such as business loans can help business owners obtain working capital while maintaining complete control of their company.
Finding the best funding for your business will depend on your business’s unique financial needs, as well as how your business will be using the funds and how quickly it needs access to working capital.
Each type of loan has a unique set of qualifications, requirements, fixed fees, and terms. So, whether your business is looking to boost cash flow, buy equipment, expand, or hire new employees, there’s a small business loan to suit your specific business needs.
6 Popular Small Business Loans
We put together a comprehensive list detailing the six most popular small business loans – to help your business learn more about the funding options available.
1. Term Loans
Term loans are financing options that provide companies with a lump sum of working capital with set payment amounts and dates. Once approved for a set amount of funds through a small business term loan, the funds will be deposited into your business bank account for immediate use.
There are both short and long-term business loans available to small businesses looking for financial assistance.
- Generally, long-term loans require higher credit profiles, revenue, and time in business than short-term loans.
- Long-term loans typically last between 5 to 10 years, while short-term can last anywhere from 3 months to 5 years.
- Finally, long-term loans are usually provided to businesses through banks and other financial institutions, while short-term loans can be obtained from online and alternative lenders.
Typically, term loans can have lower rates than other financing options, but they may have more strict upfront qualifications such as collateral, time in business requirements, or annual revenue.
- Higher loan amounts
- Predictable payment schedule
- Funding is fast (if you use an online lender)
- May require collateral
- Potentially higher costs
- Strict eligibility requirements
- Inflexible repayment schedules
Term loans can be used for a variety of business needs, including expansion plans, renovating/remodeling, or an ongoing need for working capital.
2. SBA loans
The U.S. Small Business Administration (SBA) is a government-funded entity that provides government-backed loans through partners such as banks and lending institutions that can distribute funds when capital is needed. The Small Business Administration assists small businesses that might not be able to get financial help elsewhere.
SBA loans are repaid monthly with flexible terms; however, they have strict standards, and businesses must meet specific requirements to qualify. Such as operating as a for-profit company and being current on all government loans.
- Low rates
- Long repayment terms
- Wide range of loan amounts
- Hard to qualify for
- Long approval times
- Possible down payment requirement
- The long and stringent application process
SBA loans are best for businesses with more secure credit who can stand to wait an extended period for funding. SBA loans are ideal for those looking for start-up expenses, to expand their business, or to purchase real estate.
3. Business Line of Credit
A business line of credit (LOC) is a flexible funding option that provides small businesses with access to working capital on an as-needed basis. This can be a great option if your business doesn’t need to acquire a larger loan.
Once your company has been approved for a set amount, your business can draw on that amount whenever necessary, only paying fees on the outstanding balance. Business lines of credit allow you to take out working capital when needed without taking it all at once.
- Can even out cash flow
- Flexible financing option
- Could help build business credit
- Allows your business to pay only for what your business uses
- Can be expensive
- May carry additional fees
- Stricter requirements to qualify
- Lower borrowing limits
Small business lines of credit are excellent for businesses looking for flexibility with their short-term financing needs. Your business can use LOCs to help with payroll, build a cushion, cover cash flow gaps, or handle unexpected emergencies.
4. Asset-Based Loans
An asset-based loan allows small businesses to access working capital through a loan using assets as collateral. This can allow small businesses to receive lower rates because the loan is secured with business assets, making it a less risky transaction. The more liquid the asset, the safer the loan will be. Typical assets used as collateral are inventory, accounts receivable, real estate, or equipment/machinery.
- Financial stability
- Quick application
- Quick funding
- Asset at risk
- Potential extra fees
- Lower borrowing limits
Asset-based loans can be an ideal choice for new and growing businesses, especially if they’re having trouble securing more traditional forms of financing.
5. Commercial Real Estate Loan
Commercial real estate loans give businesses access to working capital to purchase a new commercial property, refinance, or work on renovations for current commercial real estate. The loan is a mortgage secured by liens on the commercial property. This type of loan is for commercial properties only, not for residential properties.
- Long-term repayment periods
- Access to a large amount of funding
- Maintain ownership of your business
- Can have higher up-front costs
- Strict eligibility requirements
- Extensive application process
- Tough consequences of defaulting
A Commercial real estate loan is a good choice for businesses looking to finance the purchase or development of a building, shop, office space, or other commercial property.
6. Bridge Loan
A bridge loan is a short-term loan that provides businesses access to fast working capital while they attempt to secure permanent financing. This gives businesses access to a lump sum of funds during the gap between applying and getting approved for a long-term loan.
- Provides a safety net
- Quick access to capital
- Flexible payments and terms
- Potentially larger payments
- Generally higher costs and fees
- It may only be used in the very short-term
A Bridge Loan is ideal for businesses that need to leverage funding when waiting on long-term financing to buy real estate, expand operations, or manage cash flow.
Summary & Conclusion
Small business financing can give your business the flexibility to access working capital through a variety of loan options. Understanding the different loans available and how they can work best for your business will help you make an educated decision on the financing product that best fits your small business needs.
Whether you’re looking to scale your business, bolster cash flow, or even cover payroll, a business loan can help finance all these endeavors.