Growing a small business comes with its challenges, one of which is the finance aspect. Having sufficient cash flow to kickstart and sustain a business is a challenge for many people and as a result, they opt for a business loan. Most businesses fail due to poor cash management and the inability to sustain the finances for a long time.
If you are an entrepreneur or about to start the entrepreneurial journey, here are three business loans you should consider:
1. Traditional Term Loans
Term loans are loans from the bank with a specific amount and a scheduled repayment plan. It works best for business owners looking to invest in specific business areas or need working capital but isn’t advised to be used for emergency purposes. Term loans can be short-term, which could last up to eighteen months, intermediate for up to three years, or long-term that could run from three to twenty-five years.
To qualify for this loan, you will need exceptional personal and business credit with a strong annual revenue for your company. However, if you can meet all the requirements, this is a secured type of loan that can help sustain your business in the short and long term.
2. SBA Loans
Small Business Administration (SBA) loans cater to small businesses, especially the ones that struggle to be qualified for bank loans due to the strict requirements. The SBA does not work directly with business owners but rather sets guidelines to work with lenders willing to provide loans. SBA loans are quite popular due to how easy they are to access and also their low-interest rates. The major requirements are good credit scores, strong revenues, and a strong business plan that includes your repayment plan.
The most popular SBA loan products include the 7(a) loan program, the CDC/504 loan program, and the Microloan program. The 7(a) can be up to $5 million and repaid in ten years; the CDC/504 can also be up to $5 million and repaid over 10-20 years. The microloan program, on the other hand, can get you up to $50,000 and be repaid over six years.
3. Business Lines of Credit
Business Lines of Credit (LOC) are similar to credit cards and are great for business owners who want to keep cash in case of emergencies. Lines of credits give entrepreneurs access to a pool of money to be used as financial needs arise and it can be replenished as they repay the amount borrowed.
Although LOCs can be available from different kinds of lenders, they are most commonly found in banks, as they offer the best interest rates and allow a longer time between renewals. The interest rates can start from as low as 7% and you can be approved for one within a business day.
Entrepreneurs don’t have to suffer at the early stages of their business. If you have a solid business plan and can build your small business to create revenues in subsequent years, you can get a loan to keep it running smoothly and get the returns over time.