We can differentiate numerous financing options for small businesses, especially depending on what you wish to get with the amount. Similarly, as consumer options, you can choose equipment loans, lines of credit, invoice factoring, and many more.

Each one fits specific circumstances, while they come with specific advantages and disadvantages. The right option depends on your personal and business credit score and whether you can qualify for it in the first place. Besides, you should determine which aspects of your business you need money for.

Qualifications, rates, and terms vary by lending institution. Most businesses come with unique requirements for specific aspects. Therefore, you should stay with us to learn more about the different options you can choose for your business purposes.

1.Term Loans

You should remember that term loans are perfect for expanding businesses, as well as business owners who have been operating in the same line for at least six months. You should remember that a business term loan is the most common method for business financing.

The main idea is to get a lump sum of cash up front, which you can repay with interest for a specific period. Generally, you should know that the payments will stay the same throughout the loan’s life due to fixed interests, while you will get a date for payment you must not miss unless you wish to hurt your score.

You can find numerous lending institutions that will provide you with term loans including traditional and non-traditional. We are talking about online lenders, banks, nonprofits, government organizations, Small Business Association and many more.

You should know that term loans are one of the most affordable options as well, however, it is challenging to qualify for the best terms and rates. Banks usually offer the lowest rates, but they come with strict requirements including having two years in business and a good credit score of at least 720 points.

On the other hand, online lenders are less stringent when it comes to qualifications, but they feature higher interest rates than banks. You should know that you can use a specific form of collateral such as a Uniform Commercial Code lien or personal guarantee, which will help you improve the terms and rates.

Advantages

• You will get a lump sum you can invest in your business for numerous purposes
• Fixed monthly installments will offer you predictability and stability, which will ultimately help you boost your cash flow and grow your business
• You can borrow a higher amount compared with other small business loans.

Disadvantages

• It is challenging to qualify for the longest terms and lowest rates
• It may require specific collateral such as a personal guarantee
• Expenses may vary since term loans feature more significant expenses when choosing online instead of traditional lending institutions.

We recommend you to check this guide: billigeforbrukslån.no/lån-med-lav-rente/ to learn more about the different options you can choose when it comes to lender and loan products.

2.Small Business Administration Loans

If you are a business who wishes to refinance existing debts or to expand further and take the practice to the next level; or if you have a strong credit, where you wish to get the best rates and terms possible, then you should think about this option.

Generally, an SBA loan is a type of small business loan that comes with a part guarantee by the Small Business Administration, while numerous lenders can offer it. We can differentiate a few options when it comes to SBA loans, while the most popular ones are SBA 7(a).

You can use the amount for business expansion, working capital, commercial real estate purchase, and equipment, while the amount can range up to fifteen thousand for microloans. You can also get 504 loans that can go up to five million dollars, but you should be a seriously operating enterprise to even start this conversation.

The best thing about SBA is the lowest interest rates possible, while the repayment terms can go between ten and twenty-five years depending on the amount, usage, and other factors. Still, the application process is not as simple as it seems, because it can be rigorous and long, while a personal guarantee is necessary for everyone who owns more than twenty percent.

Advantages

• Long repayment term
• The amount can go up to five million dollars
• Lowest rates available

Disadvantages

• Rigorous and long application process
• Challenging to qualify

3.Commercial Lines of Credit

If you wish to handle a short-term financing requirement, handle unexpected expenses, or manage cash flow, you should choose this option. Generally, it is perfect for seasonal businesses that require specific equipment as soon as possible.

Compared with other options, you should know that a business line of credit is a revolving source of funding that will offer you access to funds up to a specific and predetermined amount. It functions the same way as a credit card, meaning you will pay interest only on the amount you decide to draw. The moment you repay the balance, you can draw again.

You can obtain a line of credit from online lenders, banks, and other alternative options. Qualifications are similar to when you decide to get a business term loan, meaning banks come with the strictest qualifications and lowest rates compared with others. On the other hand, it is simple to get a line with an online lender, but the rates are slightly higher.

You should know that a business line of credit can offer you significant flexibility compared with term loans. They are unsecured, meaning you will need a strong credit and financial history to qualify.

Advantages

• Continual access to funds after repaying the balance you have taken
• Flexible way to take money for small expenses
• Unsecured option, meaning you can avoid placing a collateral

Disadvantages

• It may feature extra expenses such as draw and maintenance fees
• You will need a strong credit score and high revenue to get it

4.Equipment Loan

Some businesses decide to lease equipment required to create specific products, which may be a financially sensible option at the beginning. However, when you stabilize your business, it is vital to get your equipment, meaning you can finance it by taking advantage of a loan. It is the perfect solution because you can make a major purchase with ease.

As mentioned above, we are talking about small business loans that can help you finance specific equipment, which may feature things such as commercial vehicles, office furniture, commercial fridges, and many more.

Compared with other options, equipment financing is simple to qualify for because you will use the bought belongings as collateral to secure a loan you wish to get. Still, the terms and rates will depend on your personal credit history and business financial situation.

Advantages

• As soon as you purchase a particular equipment, you can rest assured because it will act as a collateral for the loan
• Lenders understand the problems that come with financing necessary and significant equipment. Therefore, they are more likely to provide you with a better term, but you will need to present a positive credit history and score.

Disadvantages

• Remember that some lenders will require a down payment
• Generally, equipment tends to lose its value the moment you take it out of the store, meaning it will depreciate faster than the length of your loan