In 2020, small businesses helped create 1.6 million new jobs. Small businesses use loans to stock their shelves, invest in new equipment, and hire new employees. As a small business, the right loan can help you expand your business, and in doing so, your profits. However, before shopping around for a small business loan, it’s important to know how much money you need, what you plan on using the money for, and how long it will take to pay off.
4 Business Loans To Consider
Here are 4 types of small business loans that may work for you:
Banks are a popular choice of funding for small businesses as they tend to have the lowest interest rates. Typically, your local bank or credit union will provide the best rates for a small business loan. However, banks usually only lend to businesses that can prove some level of success, which can pose challenges for small businesses that are just starting out. Additionally, banks tend to lend to small business owners who have invested some of their own money into the company and require collateral like real estate or inventory.
Small Business Administration (SBA) Loans
SBA loans are federal loans available to small businesses from lenders in the private sector. Since SBA loans are secured, meaning they require a borrower to put up personal assets as collateral. Some of the different SBA loan options include:
- Microloans: These are capped at $50,000 and intended to help small businesses start up or expand.
- 7(a) loans: This is the SBA’s main program for providing loans to small businesses. Loan amounts range from $350,000 to $5 million. Eligibility is based on a company’s income, credit score, and location.
- 504 loans: These loans provide long-term, fixed interest rate funding of up to $5 million for assets that promote business growth or job creation.
Each of these loans provides unique benefits. For example, microloans provide great resources to companies that wouldn’t normally qualify for a loan, and 7(a) loans are very versatile and can be used for a variety of purposes.
Supply chain loans—also referred to as receivable financing—function as pay-day loans but for businesses. Companies can essentially use their invoices as collateral to secure a low-interest loan from a bank. For example, if you sell consulting services to an enterprise company, you can use your outstanding invoices to get an advanced payment from a third party. In these scenarios, the invoice provides proof of payment for the bank or lender. Supply-chain loans can be a great option for helping small businesses obtain favorable loan terms.
Business Line of Credit
Small businesses can use a business line of credit to pay interest only on the amount of money that they borrow. In this way, a business line of credit works similarly to a credit card as you can draw and pay funds as you need as long as you don’t exceed your credit limit. This can be a great financing option for businesses looking for an easy way to manage cash flow or purchase needed products. Additionally, many lenders will let you pay off your balance early to avoid hefty interest payments. The one notable drawback is that line of credit limits tend to be significantly lower than other business loan amounts.
Are You Struggling with Business Debt? Contact a Debt Settlement Lawyer
Sometimes, even with the best efforts, business owners find themselves in a situation where they take on more debt than they can handle. If your business has racked up a large amount of debt, you should contact a debt settlement lawyer.
At McCarthy Law, we understand the overwhelming burden that debt can have on business owners’ lives and are committed to helping them end the cycle of debt. Our team is dedicated to helping our clients navigate their financial circumstances and reach a favorable outcome. To schedule a consultation with one of our skilled debt settlement attorneys, call (855) 976-5777 or fill out our online contact form.