3 Types of Loans For a Small Business
The need for capital is a constant when operating a small business, particularly (if not exclusively) at the outset. Starting costs are high, and unless you have access to substantial amounts of cash, it is likely you may need to take out a sizable loan to get a business started.
Fortunately, there are numerous options for borrowing, whether this is your first time taking out a commercial loan or not. Below are three useful types of loans with which to familiarize yourself at a small business.
- Commercial Term Loan
A commercial term loan is a typical type of business loan, generally taken out from a bank or credit union. Term loans can be a great way to get funding at reasonable interest ways, for manageable time periods. Of course, banks and credit unions generally have fairly stringent criteria for these types of loans. You may require a high credit score at or above a certain level, or a successful business history.
Luckily, while they may be the first option you seek out, there are several other means of funding that can be useful.
- SBA Loan
An SBA loan functions similarly to a standard commercial loan, except that it is partially backed by the Small Business Administration. Consequently, you may sometimes be able to access an SBA loan when you might otherwise be denied for a bank or credit union commercial loan.
There are also a number of types of SBA loans, applicable to widely varying business needs. These include 7(a) loans, CDC/504 loans, microloans, and others. Each loan typically has varied subtypes. While SBA loans may take considerable time for approval, they can be an excellent funding method for a business.
- Asset-Based Loan
An asset-based loan is a unique type of loan, in that it is guaranteed by some asset you put up as collateral. This can be property, equipment, accounts receivable, or something else. Asset-based loans are useful because the loan can easily be secured based on the assessed value of the collateral. These loans typically will not carry stringent criteria, so long as your collateral is accurately valued, and can be used for whatever is necessary. Approval time will also likely be brief.
These are only three ways to secure financing for business purposes; there are many others, and it is useful to do a thorough review of your needs prior to seeking out any loan.