Every kind of business needs to have proper financing to operate successfully. Usually, many business owners spend their savings on starting a new business. However, not everyone has the liberty to invest their money into their startup business.
Therefore, business loans were introduced to give people an opportunity — an opportunity to own their business. However, getting a loan is not as simple as it sounds. There are many types of business loans, and deciding which one is the best one for you can be quite a hassle.
Nevertheless, here is a list of six types of business loans that you must get as a business startup owner:
Applying for a Small Business Administration loan is possibly one of the best choices you will make as a startup business owner. Small Business Administration is a federal agency. In 1964, they started helping small businesses survive in their respective industry by offering them a loan.
Furthermore, this type of loan is quite flexible since it can offer you money from 40,000 to almost 4,000,000 dollars. Plus, the terms also cover a huge range, from 15 to 30 years which should be more than enough for you to pay it back. However, SBA loans are quite famous for being slow. For instance, if you apply for a loan in early January, you might not get the money till June or July.
Suppose you want to apply for an SBA loan. In that case, you will have to gather all the necessary information related to your business, including your business license, year of personal tax returns and two years of business tax returns, a debt schedule, YTD profit, and loss and YTD balance sheet.
Business term loan
As of 2021, this loan has been the top seller for years because they are so reliable. In this type of business loan, you can expect an amount from 10,000 dollars up to 1,000,000 dollars, and unlike SBA loans, you will get that money in just a couple of days. If not, then, a week max.
The range of money that this type of loan offers allows you to acquire anything that you may need for your business, including but not limited to working capital. Moreover, it is much easier to pay back this type of loan since the interest rates are as low as 2 to 5 percent, making it less stressful for you to pay the debt.
The business line of credit
This type of business loan is quite similar to credit cards. If you are approved for the loan, the bank will give you a credit range from 1,500 dollars to 550,000 dollars. The business line of credit is very reliable since the money is available in a few days. Furthermore, depending on the bank, the interest rate varies from 10 to 20 percent, and certain banks usually give one-year maturity.
Furthermore, it is quite easy to complete the eligibility criteria for this one. All you need is a credit score higher than 550 and 50,000 dollars in annual profit.
Short-term business loan
Short-term business loans are best for small and new businesses with low credit scores because this loan is low-risk. Not only that, but this loan is also good for businesses that need some cash as soon as possible to prevent their business from failing. The interest rates are as low as 10 percent, and some banks offer up to 4 years to pay it back.
Merchant cash advance
In merchant cash advance, you can ask for money from 5,500 to 250,000 dollars. However, in this type of loan, you will be borrowing against your future revenue. If you get approved, you will start repaying the debt from day one by giving a percentage of your daily revenue to the lender.
This type of loan is quite convenient since you can get the money in less than a day. However, the interest rates are much higher than other loans, starting at around 20 percent.
Applying for a mortgage loan is a good choice if you are looking for a location. You can use the money from this loan to get out of a lease or even purchase a business location. Moreover, mortgage loans are also available to homeowners making it easier for people to purchase their dream homes.
Since this type of loan offers huge amounts of money, from 300,000 to 5,000,000 dollars, you will be using your property as collateral, and the banks will decide on the amount depending on the value of your property. Moreover, the interest rates are quite low with 15 to 30 years of maturity.
A piece of advice
Before randomly moving on with applying for a business loan for your startup business, it is essential to make sure that you do your homework beforehand to ensure that you are applying for a type of business loan that is best for you and your business.