As a small business owner, seeking out the most favorable loan you can is a necessity for success. Loan repayment is one of the most significant costs involved in starting a small business, and understanding the wide range of options you may have is essential for fiscal stability.
With that in mind, it’s worth considering the following three types of loans, as you work to chart out a successful fiscal path for your business.
1. SBA Loans
SBA loans encompass a wide variety of loans that are partially backed by the Small Business Administration. These include:
- 7(a) loans
- CDC/504 loans
- SBA disaster loans
- SBA CAPLines
- Export loans
Various types of SBA loans may have unique subtypes, and all are tailored for unique business situations, so it may be useful to discuss your particular needs with a financial professional to determine what makes sense for you. While these loans are federally-backed, they are offered through private financial institutions, so it may also be worth comparing rates across institutions.
2. Asset-Based Loans
Asset-based loans encompass a range of lending options where financing is offered based on the collateralized value of a given “asset” — which may be real estate, inventory, equipment, or something else.
Asset-based loans are unique because the primary determining factor is the value of the given asset. Consequently, you may be able to get a loan if you have sufficiently valuable collateral, even if you have a subpar credit score, or a limited business history. Asset-based loans also tend to be less restrictive about what the loan can be used for, because they are largely determined by the value of the given collateral.
3. Lines of Credit
Lines of credit can be an incredibly useful lending option for a small business. Rather than a large, loaned one-time sum — as is typical with term loans — a line of credit will offer revolving financing up to a certain limit. It may or may not be “secured” (by collateral).
Lines of credit can be a great way to flexibly draw funds as needed — for emergencies, one-time needs, or other quick uses. While not typically an effective means of funding a large expansion, they are a useful tool in maintaing fiscal stability.
These are only a few of the lending options available to small businesses. It’s always worth consulting with a financial professional to determine what matches your unique business needs.