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The 8 Most Popular Types Of Small Business Loans In USA

Best Small Business Loans

Small business owners can choose from a variety of business loans to meet their financing needs. Each credit product has unique rating requirements, interest rates, and terms. Whether you want to buy equipment, real estate, inventory, or just need working capital.

There are many types of small business loans – from business credit lines to account factoring to merchant cash advances – each with its own advantages and disadvantages.

The right choice for your business depends on when you need money and what you need. Here are the 8 most popular types of small business loans to suit your needs and preferences.

Overview of Different Types of Best Small Business Loans For Bad Credit

At some point, almost every small business needs some additional capital to increase existing cash flow, hire new employees, or simply take the business to the next level. Fortunately, there are several business finance options to choose from, each as unique as the funded business.

The following details the different types of business loans for startups (and the best lenders for each type), but first you can find the summary version in the following table:

Summary Small Business Loans For Startups

LOAN TYPETYPICAL AMOUNT, CONDITIONS, RATESBEST FOR
Term loansUp to $ 600,000;
about 1-5 years. 7% – 30%
Different business owners
for different purposes.
Faster process and fewer
requirements than traditional bank loans.
SBA loansUp to $ 5 million. 5 to 25 years.
Variables based
on prime rate
Established business with strong finances
that require funds for a
variety of purposes
Business lines
of credit
Up to $ 250,000;
up to 2 years; 7% – 25%
Business owners who want a flexible
form of financing to cover
their urgent funding needs
Equipment
financing
Up to the amount of the equipment;
About 5 – 6 years; 4% – 40%
Business owners looking for money
to buy physical
equipment in particular
Invoice financingUp to 100% of the invoice value. Until the buyer pays the bill. Approximately 3% and
factoring charges (~ 1%)
per week until the invoice is paid
Business owners with unpaid bills who need a capital advance to cover
cash flow or other short-term financing needs
MicroloansUp to $50,000; up to 6 years;
starting at around 7%
New or established businesses looking for a small amount of capital
Personal loans for business useUp to $ 35,000; 3-5 years;
5.99% – 35% APR
More businesses are starting up and need affordable financing
Merchant cash advancesUp to $ 250,000; paid daily through your merchant account;
factor 1.14 – 1.18
Businesses that are not eligible for other types of financing; quick (but expensive) access to capital
Overview of Different Types of Small business loans

Secure Financing With These 8 Types Of Small Business Loans For Startups

Small business loans can help you finance projects, buy equipment, and raise working capital if you don’t have enough cash. Here are 8 types of small business loans:

Secure Financing With These 8 Types Of Small Business Loans
Secure Financing With These 8 Types Of Small Business Loans

Term Loans

Term loans are one of the most common types of small business loans and are a single piece of cash that must be repaid over a period of time. Monthly installments are usually fixed and include interest in addition to the principal balance. You have the flexibility to use a term loan to meet different needs, such as daily costs and equipment.

Online lenders can offer up to $ 1 million in term loans, which can be funded faster than banks offering small business loans.

Advantages:

  • Get cash in advance to invest in your business.
  • You can usually borrow more than other types of loans.
  • Financing faster with online lenders instead of traditional banks. It usually lasts from a few days to a week, but up to a few months.

Disadvantages:

  • Personal guarantees or collateral may be required. It is an asset, such as real estate or office equipment, that a lender can sell in the event of default.
  • Costs are subject to change. Term loans from online lenders are usually more expensive than loans from traditional banks.

Optimum Use:

  • A company looking to expand.
  • A borrower who has good credit and a strong business and does not want to wait long for financing.

SBA Loans

Small Business Administration (SBA) loans are the type of small business loans, attractive to business owners seeking low-cost government-sponsored loans. However, SBA loans are notorious for the long application process, which can delay the receipt of funds.

It can take up to 3 months to be approved and receive the loan. If you don’t need money right away and want to benefit from low and low-interest rates, SBA loans are for you. It ranges from 7 years of working capital to 10 years of equipment purchase and 25 years of real estate purchase.

Advantages:

  • Some of the cheapest prices on the market.
  • It can take up to $ 5 million.
  • Long repayment terms.

Disadvantages

  • Difficult to qualify.
  • It is a long and tedious application process.

Optimum Use:

  • Businesses looking to expand or renew existing debt.
  • Strong creditors who can wait a long time for financial support.

Business Lines Of Credit

Like credit cards, business credit lines provide borrowers with a revolving credit line that they can usually access through a checking account. You can spend, repay, and withdraw additional money up to your maximum credit limit.

These options are great if you’re not sure exactly how much you’ll need, as you only have to pay interest on the amount you raise. This is compared to a term loan where you have to pay interest on the entire loan – using all or part of it, Many business lines of credit are unsecured, which means you don’t need collateral.

The Business Line of Credits provides access to funds up to the credit line limit and pays interest only on the withdrawn money. It’s more flexible than a term loan.

Advantages:

  • Flexible borrowing.
  • No collateral is required as it is usually unsecured.

Disadvantages:

  • May incur additional costs such as service fees and draw fees.
  • Strong income and credit are required.

Optimum Use:

  • Management of short-term financing needs, cash flow management, or unexpected expenses.
  • Seasonal business.

Also Read: Top 5 Best Business Credit Cards

Equipment Financing

If you need to fund the purchase of a large piece of equipment, but you don’t have the capital, you should consider an equipment loan.

These loans are intended to help you pay for expensive machinery, vehicles, or equipment that maintains a value, such as computers and furniture. In most cases, the equipment you purchase will be used as collateral if you cannot repay the loan.

Equipment loans help you buy equipment for your business, sometimes including trailer financing. Business auto loans are available for cars, vans, and light trucks.

The term of an equipment loan usually matches the expected life of the equipment, and the equipment serves as collateral for the loan. Prices will depend on the cost of equipment and the strength of your business.

Advantages:

  • You own the equipment and build capital on it.
  • If you have strong credit and business finance, you can get competitive interest rates.

Disadvantages:

  • You may need to bring an advance payment.
  • Devices may be outdated faster than your finances.

Optimum Use:

  • Companies that want to own the equipment directly.

Invoice Financing

Business owners who have difficulty obtaining timely payments are advised to opt for account factoring or account financing also known as receivables financing. Invoice factoring allows you to sell unpaid invoices to creditors and receive a percentage of the invoice in advance.

Investing in an invoice is like making an invoice, but instead of selling your unpaid bills to a manufacturing company, use the invoices as a guarantee to get the cash advance.

Account financing allows you to use an unpaid account as collateral to prepay an unpaid amount. The main difference between the two is that factoring allows the company purchasing the invoice to verify the collection of payments, while financing requires the collection of payments to be repaid.

Advantages:

  • Quick money for your business.
  • Easier acceptance than traditional investment opportunities.
  • Instant cash.
  • Your customers will not know that their invoice is being funded

Disadvantages:

  • More valuable compared to other options.
  • You have lost control of collecting your invoices.
  • You are responsible for collecting invoice payments.

Optimum Use:

  • Businesses that want to convert unpaid bills quickly.
  • Businesses that want to control their invoices.

Microloans

A microloan is a small loan that can provide up to $ 50,000. Due to the relatively small amount of loans, these loans are suitable options for new businesses and businesses that do not require large amounts of cash.

Many microloans are offered through nonprofits or governments like the SBA, but you may need to provide collateral (office equipment, real estate, personal assets, etc.) to qualify for these loans. These loans are usually available to start-ups, new businesses, and businesses in underprivileged regions.

Advantages:

  • Low price.
  • Other services such as consulting and training may be provided.

Disadvantages:

  • Smaller loan amounts.
  • You may have to meet strict eligibility requirements.

Optimum Use:

  • Startups-Entrepreneurship and business in underprivileged communities.
  • Companies looking for a small amount of money.

Personal Loans For Business Use:

Personal loans can be used for business purposes. This is an option for start-ups, as banks usually do not lend to companies with no business history.

Approval of these loans is based solely on the individual’s credit score but requires sufficient credit to qualify.

Advantages:

  • Startups and new businesses can qualify to participate.
  • Fast funding.

Disadvantages:

  • High cost of credit.
  • Small loan amounts to up to $50,000.
  • Failure to pay can damage your credit.

Optimum Use:

  • Startups and new ventures with strong personal credit.
  • Borrowers are willing to risk their credit history.

Merchant Cash Advances

Like traditional Cash Advances, Cash Trade Advances are expensive. This type of cash advance requires you to take out a loan in exchange for future sales. Pay in exchange for a lump sum as part of your daily credit card sale or by a weekly transfer from your bank account.

You can often get quick cash advance loans from merchants, but these types of loans are risky due to high-interest rates. Unlike account financing/factoring, prepaid cash transactions use credit card sales as collateral rather than unpaid invoices.

You get a prepaid cash lump sum that you can use to fund your business. Instead of making a fixed monthly deposit from your bank account as you would with a term loan, you pay the seller upfront in cash, either by deducting one percent of your credit and debit card sales on a daily basis or by making fixed daily or weekly payments on Bank account.

Advantages:

  • Fast cash.
  • Unsecured loan.

Disadvantages:

  • The highest borrowing costs – in some cases up to 350%.
  • Frequent repayments can cause cash flow issues.

Optimum Use:

  • A business that has high and stable credit card sales and can handle frequent repayments.
  • Companies that cannot raise funds elsewhere and cannot wait for capital.

How Do You Get Approved For Legit Small Business Loans?

After clicking to submit a loan application, the lender will consider several factors to determine the answer. The same factors also play a role in determining the terms and interest rate of a loan if approved.

HOW DO YOU GET APPROVED FOR SMALL BUSINESS LOANS?
HOW DO YOU GET APPROVED FOR SMALL BUSINESS LOANS?

Here are 6 key factors that lenders will consider when evaluating your business credit and deciding whether to open their wallets.

Personal Credit

You can most of the time expect lenders to have a keen interest in your business credits. However, your business credits are closely related to your personal credits, so we can safely guess that they will also want to see your personal financial situation.

This information typically includes credits used, credit history, payment history, and unpaid amount.

Personal Debt Coverage

Your personal finances and your business finances are connected again, so the lender will be interested in compensating you for your personal debts. If you are in a healthy position, expect your lender to pay less attention to your risk and work more enthusiastically with you.

Business Debt Coverage

It is normal for your business to be in debt. The question is whether your business can handle debt. To get a gem of your business’s debt coverage, the lender must evaluate your cash flow and debt payments.

Use Of Personal Debt

If you have personal debts, you are in good company. About 80% of Americans have some form of debt. What can make you stand out from the crowd is having a loan that you are not currently using? To get this figure, the lender will divide your outstanding debt by the total amount of your available revolving credit.

Use Of Business Debt

The lender will also take care of your business’s debt stock. Debt is not really important. What matters is whether the amount of debt is appropriate for the size of the business and the industry in which it does business. This estimate is derived from a comparison of outstanding business debt and assets and income.

Business Revenue Trend

If your business is going in the right direction, lenders are more motivated to work with you, so they want to know how your average income grows over time. If you reach or exceed your industry average, you are in great shape. If it’s below average, plan to run into difficulties with your funding efforts.

Startup Business Loans With No Revenue

Because of the many options available, it can be difficult to choose small business loans. But if you assess your business needs, you can narrow down your options. Then do some research with some lenders to find out what interest rates, fees, loan amounts, and terms they offer. This can help you find the best loan for your situation and get the money you need to succeed in your business.

As mentioned earlier, there are different types of small business loans. Ultimately, a good loan for your business depends on several factors.

After all, all types of small business loans have been designed for different business needs. Therefore, you need to consider your credit, your business finances, the length of your business, and the reason for your loan before narrowing down your options.

If you do this, you probably have some (or more) eligible options. However, instead of applying for some loan products individually, you can use an online marketplace such as Fundra to fill out a single application to find eligible loan options and get support for the entire loan period.

Frequently Asked Questions(FAQs)

Can I apply online for small business loans or a line of credit?

Yes. If you have a Small Business Online Banking login, you can apply for an unsecured business loan and an unsecured business credit line online.

How do I apply for an unsecured line of credit?

Due to our commitment to the Paycheck Protection Program under the CARES Act, we are not currently processing new Business Advantage credit line or term loan applications. We apologize for any inconvenience.

Can non-US citizens get a business loan?

Can anyone apply for an SBA loan outside the United States? Can I get an SBA loan for small businesses without being a U.S. citizen? The answer is yes, but not in all cases. Legal permanent residents (LPRs), also known as green card holders, are eligible for SBA funding.

Do immigrants get business credit?

Immigrants who are legally resident in the United States but are not permanent citizens may continue to receive an SBA loan if they have an appropriate work visa with a current date. Immigrants who have applied for asylum and refugee status will continue to be eligible for SBA loans if they are legally resident.