Small businesses contribute to our economy in a big way. They service our local communities, offer employment opportunities and more. If you’re a small business owner in NJ, it may be coming to the point where you need to take out a loan. Whether you’re running low on finances, loans help businesses get back on their feet while revenue increases. There are so many types of business loans—but which one is right for you? This guide will help you determine the best financing for your small business.
A small business administration (SBA) loan is the most common and most popular type of business loan. Since the only requirements fall within the “small business” category, almost any small business owner can take out an SBA loan. This flexibility helps you use your loan for a variety of reasons: to purchase updated company equipment, pay off debt, acquire other new products for your business, and even use it as your working capital.
With an SBA loan, the average amount a business can receive is about $5 million. SBA loans also come with low-interest rates, so they’re affordable, and borrowers are given plenty of time to pay them off, anywhere between seven and 25 years.
Keep in mind that it’s hard to qualify for an SBA loan. You need collateral, good credit, and you need to provide your business plan. You also need to submit a lengthy application and provide a lot of documents.
Are you having a difficult time paying for business equipment out of pocket? Just finance your equipment. An equipment financing plan will help cover necessary expenses. These include specialized computers and other equipment that’s necessary to your business.
Depending on the lender, they can offer a loan based on the full price of the equipment you’re purchasing. Your rates also depend on the strength of your business. If your business is successful and your credit is good, you’ll receive an even better rate. However, be prepared for a down payment.
The issue with these loans is that your equipment may become outdated. You’ll need better equipment but you’ll still have your financing burden. Be sure you take this loan knowing there’s a slim chance your equipment will need to be upgraded.
Did an emergency arise and you need money fast? If this is the case, a short-term loan is your best bet. You can get around $150,000 much quicker than you would any other loan. The process is so speedy that you can usually get your money in 24 hours.
The reason behind this “quick money” loan is the amount you receive is technically smaller than a traditional loan. The only downside is you have to quickly pay off the loan. The time period to pay off the loan is between 12 and 18 months.
Personal Loan for Business
Looking at the dollar amounts on these loans might be intimidating. Maybe you want a simple loan for a small purchase or to ensure you have enough money in the bank. You have the option of taking out a personal loan and using it specifically for your business.
This is perfect for business owners who need a loan but don’t have a lot of capital. If your capital is under $35,000, then this is the loan you should take.
With a term loan, you receive a lump sum that you pay back with interest. With a term loan, you receive the cash upfront. You’re usually given a specific term to pay off this loan. This is one reason why term loans are one of the most common types of business loans. They are easy to acquire from a bank or a lender; however, you’ll get the money faster through a lender. It usually takes a few days or a week to receive your loan.
Term loans are flexible and you receive cash immediately. You can even manage a low-cost loan that you pay off for a longer period. This loan works for small businesses and businesses that need some extra cash. You’ll get your money immediately and if you have good credit, the stakes are low.
Business Line of Credit
This loan works within your credit limit. You receive a loan worth your maximum credit line and only pay interest on the money you’ve withdrawn. This makes this loan affordable, especially for new business owners.
You also have more flexibility when paying your loan off. Like a credit card, you can pay in full or make small monthly payments. Another reason why this loan is perfect for small business owners is that it’s unsecured. This means no collateral is required. Keep in mind additional fees may be required, such as maintenance fees and draw fees.
You also need great credit and a decent revenue stream. If your business doesn’t have much revenue coming in, it might be an issue getting approved unless you use your personal finances. This is still a great option for small businesses or those who have unexpected expenses.
Now You Know the Different Types of Business Loans
When deciding which business loan to take, there are multiple factors to consider. The loan you take depends on your revenue, how fast you need money, what you’re using it for, and your credit.
The sanctity of your business relies on available funding. Fortunately, you have a lot of loan options. Many of these business loans have flexible paying options and terms. Some even work with your line of credit. You should have no problem finding a business loan that works for your needs.
Photo by Kaique Rocha