9 types of small business loans

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If you are a business owner who needs access to cash, a small business loan can help. But choosing the right kind of loan is crucial. Pick the wrong loan and you may have to wait months to receive funds when you need them quickly or end up with the wrong type of finance offer.

Small business loans can be geared towards specific needs, such as helping you expand your warehouse or start a franchise. There are also loans that can give you access to cash when you have a pile of unpaid bills.

Most small business loans are available from online lenders, banks, and credit unions. Interest rates, fees, limits, and loan terms vary depending on the type of loan, lender, and borrower.

It’s important to understand how each loan works so that you can choose the best option for your business. Below, CNBC Select reviews nine types of small business loans that can benefit your business.

9 types of small business loans

1. Term loans

Term loans are one of the most common types of small business loans and are a lump sum that you pay back over a fixed term. Monthly payments will generally be fixed and include interest in addition to the principal balance. You have the option of using a term loan for a variety of needs, such as daily expenses and equipment.

2. SBA loans

Small Business Administration (SBA) loans are attractive to business owners who want a low cost government guaranteed loan. However, SBA loans are known for a lengthy application process which can delay when you will receive the funding. It can take up to three months to get approved and receive the loan. If you don’t need the cash fast and want to benefit from lower interest rates and fees, SBA loans can be a good option.

3. Business lines of credit

4. Equipment loans

If you need to finance large equipment purchases, but don’t have the capital, an equipment loan is something to consider. These loans are designed to help you pay for expensive machinery, vehicles, or equipment that retain their value, such as computers or furniture. In most cases, the equipment you buy will be used as collateral in the event that you cannot repay the loan.

5. Factoring and invoice financing

Business owners who struggle to receive payments on time may choose either invoice factoring or invoice financing (i.e. accounts receivable financing). With invoice factoring, you can sell unpaid invoices to a lender and receive a percentage of the invoice value up front. With invoice financing, you can use unpaid invoices as collateral to secure an advance on the amount owed to you. The main difference between the two is that factoring gives the company that buys your invoices control over collecting payments, while financing still requires you to collect payments so that you can repay the amount borrowed.

6. Commercial real estate loans

Commercial real estate loans (also known as commercial mortgages) can help you finance new or existing property, such as an office, warehouse, or retail space. These loans act like term loans and can allow you to buy new commercial property, expand a location, or refinance an existing loan.

7. Microcredits

Microcredits are small loans that can provide you with financing of $ 50,000 or less. Since the loan amounts are relatively low, these loans can be a good option for new businesses or those who do not need a lot of money. Many microloans are offered through nonprofit or government organizations, such as the SBA, although you may need to post collateral (such as business equipment, real estate, or personal property) in order to qualify. to these loans.

8. Merchant cash advances

9. Franchised loans

Becoming a franchisee can help you reach your goal of business ownership faster and easier than starting from scratch, although you will still need capital. Franchise loans can provide you with the money to pay for the initial costs of opening a franchise so that you can be up and running. While you take out the loan through a lender, some franchisors may offer financing to new franchisees.

At the end of the line

With so many options available, it can be difficult to choose a small business loan. But if you assess the needs of your business, you can narrow down the options. Then research a few lenders to see what interest rates, fees, loan amounts, and terms are available. This can help you find the best loan for your situation and get your business the money it needs to be successful.

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Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.


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