Different Types of Small Business Loans
There are many different types of business loans that can be used for a variety of purposes; inventory loans, emergency business loans, etc just to name a few. These loans are available from different sources. When a business sets out to get a loan they should seriously consider the type they will need. Here are some of the most common types of small business loans that are given by the government and financial institutions.
Small Business Loans: The 7(a) loan Type
The 7a Loan small business loan is offered by the government to help businesses that require special requirements. This type of business financing is only available for small businesses that operate for a profit and demonstrate a need for the loan. Other requirements include using the funds for sound business purposes and they should not have any outstanding debt with the US government. As long a business is able to meet these basic requirements and a few more they should not have a problems securing this type of funding.
Conventional Bank Loans
Banks are in the business of lending of money for a profit. This is one of the main reasons why they exist. When a person wants to go into business they can appeal to a bank for a loan. The requirements for bank loans are about the same as those for a government sponsored SBA. However, borrowers have more freedom with how they use the money. The loan rates tend to be lower than the government sponsored loans and the approval process is usually a faster.
Microloans are small loans that are lent to businesses. The loan amount for a microloan is between $500 and $100,000. This type of loan is best suited for small enterprises and operations that can be managed by one person. Microloans help to give many startup and struggling entrepreneurs the financial boost they need to start a business and to remain in business.
Alternative lenders make loans to organizations that are just starting off or to enterprises that has a bad financial rating or no collateral. These types of institutions typically charge higher interest rates. They also lend lower principal amounts to borrowers. These types of loans should be used as a last resort for a business. These types of loans are best suited for organizations that operate on a seasonal schedule and retailers.
Short Term Loans
Short term loans do not require a bank to pay back the money in monthly payment amounts. Instead, the borrowing organization has to pay the sum back all at once. This type of loan is often used for short term situations which involve building up inventory or raising cash for accounts payable.
Lines of Credit
Instead of using a traditional loan some small businesses can use a line of credit to pay for expenses. This loan method allows a business to pay off expenses by using a fixed credit amount that is doled out on a monthly basis. This type of financing has high interest.