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Small Business Loans from SBA and other Lenders

What Are the Different Types of Small-Business Loans and Advances?

There are different types of loans for small businesses, but the SBA loans are the most popular. SBA, the acronym for US Small Business Administration, sets guide lines for businesses so that they can get credit from lenders in the market, and also partly stands as guarantor to the loans, for easy access. They typically have lower down payments, flexible requirements, and sometimes, zero collateral requirements. Some products also accompany continual support for the business for starting, as well as for running.

Types of Small Business Loans

Types of SBA Loans:

The legendary 7(a) loan advance program from SBA

A 7(a) loan program is the undisputed leader, when it comes to small business loans. SBA stands as part guarantor to the loan, and the loan is made by vendors that are approved by the SBA. The risk of the loan, due to part federal backing by SBA, is greatly reduced, making the lenders more comfortable to lend to the businesses. Search for an approved 79(a) SBA loan vendor, and approach them, to avail this loan for your small business. You can get loans up to 5 MILLION USD. The SBA can guarantee up to 85% of loans if they are within USD 150,000 and upt o 75% of loans which are greater than 150000 USD. There are 7(a) SBA loans for working capital, short term capital and export related activities as well. Search and contact an SBA 79(a) lender now!

The Micro Loan Program from SBA:

Looking for a short term, small amount for a specific need of your business? The microloan option from SBA could be just what you need. You can expand your business, use it for working capital requirements, buy furniture or fixtures, supplies and raw materials, or just inventory. The upper cap of the loan in 50,000 USD , and you cannot invest its proceeds in long term nature of any kind, including paying for debts or buying real estate.

The 504 Loan Program:

Looking for a long term loan, non working capital in nature, for acquiring major assets? Your small business can get a major boost with these long term, big loans, repayable over a period pof 10 or 20 years, at low, stress free interest rates. Your small business can receive up to 5 million USD on this category of loans.

Disaster loans Program as business advances

This category of loans is for small business that have been hard hit due to a disaster or natural calamity. The covid 19 periods saw many businesses receiving loans under this category. Though the covid 19 hit business loans have stopped, they exist for all other disasters and calamities, for example, hurricanes and tornadoes. Small businesses get special, very low rate of interest loans to cover for their damages, or to pay for investing in projects that will save them from future such disasters. Working capital, fixed debt payments, rent, salary etc can also be covered in these loans. This loan acts as a saviour to the business when they are struck by a disaster.

What are the basic requirements for business to avail for SBA loans?

The requirements are minimal from SB side, and they list it as:

Please be sure that there will be more requirements, from the lender, when you actually try to go and secure a loan. No loans are cakewalk, and prepare to burn some good midnight oil, when you try to secure a loan for your business. Please check our guide on How to Get A Business Loan, to prepare yourself, before you apply for a business loan, small or big.

Other non SBA loans, types and providers, for small businesses:

The Business Lines of Credit:

These are the most coveted loans for any business, big or small. The beauty of these loans is that they work like a credit card for your business. A sum is authorized to your business as a credit line, and you pay for interest only for the amount, that you have used from that sum for your business needs. As soon as you put a part of the loan back to your account, the calculations readjust, and you are charged interest only for the outstanding amount. If there is no outstanding amount, then you do not pay any interest! Lenders generally ask for collateral for extending line of credit loans.

Term loans

As the name suggests, you get an amount for a set term, and you start paying EMI instalments a month after you receive the credit, at a fixed rate of interest. It does not matter you use the full amount in one day or in your entire period, you begin service of your loan as soon as you get credit of the amount in your account. They are generally without collateral. As, with collateral, it is better for the business to take a line of credit as finance, instead of a term loan.

Equipment loans

Equipment financing loans are very popular with businesses that deal with heavy machinery and transporting vehicles. The equipment is kept as the collateral and is hypothecated to the bank or lender. The business serves the loan in the same way as a term loan. In some cases, extra collateral may be sought by the lender, but this can be negotiated.

Invoice financing loan

It is possible to get a major part of the invoice you have drawn, as finance, before you realize the invoice amount. It requires that the party, to whom you have drawn the invoice to, is reputed (like the government or a big business house) and it can be verified by them. You pay back the loan, once you have realized the invoice. These loans are generally collateral free, and the period of the loan is the same as realization of the invoice. It build good credit record, and you business will get good credit offers, once you have services some of these loans successfully.

Merchant cash advances

See it as a the business version of drawing cash out with your credit card, from a nearby atm. The business is provided a lump sum amount, with a payback period of anywhere between 3 months to 12 months. Repayment may be through ECS, debited directly from your bank, as a cut of your sales, or as daily, weekly or monthly transfers. They are collateral free, with few documentation requirements, but make up on the high rate of interest charged. It is best to avoid such loans.

Real estate loans

It works in the same way as equipment loans, but requires no other collaterals. The repayment power of the business is thoroughly assessed though. Interests are low, and the real estate is kept as collateral. They are used to buy new real estate for extension of business, and they can be land, buildings, warehouses etc., for commercial purpose.

Franchise loans

The typical requirement of taking up any franchisee is that there are upfront costs involved. This loan provides for that exact purpose, and it pays for the amount you need to pay to your principal. Rest of it works like a term loan. Frequently, the principal themselves help their franchisee to avail such loans.

Online Lenders

They occupy a significant protein of the pie chart now, and they work as any other bank, just that they do not have any physical branches. All your documentation is online, and money is credited directly to your business’s bank account.

Credit unions and business wings of banks:

Typically catering to established businesses with good credit records, they work amazingly fast for their borrowers, to service them.

Benefits of getting a loan for your business:

  1. Leap frog to the next level with added finance
    Handsome amounts are available for loans to small businesses, which will help you mitigate the small problems, and compete with the others in the market, to get the best of machinery, talent, location and for expansion. Without loans you may take years to reach there, or worse, you may never actually reach there and become big.
  2. Flexibility of long term and short term
    Bank loans can be of various periods, and for various reasons. A good business planner will have different types of loans for different purposes, and he will not mix up the loan amounts for purposes other than the purpose for what the loan was sought for.
  3. Your equity stays as your own, and you do not dilute control of your company
    If you share your equity to get funds, you lose that much of ownership and control, which can hurt big time if your business becomes really that big. As the equity of the business gains value, the amount of money for which you parted with that equity, becomes meagre. You get less value for your years of hard work and acumen. A loan protects you from all this, and banks are happy if you service their loans properly, without any longing for equity.

Disadvantages of small business loans:

Documentation, documentation and documentation

Lenders seem to have an unending list of documents required, and most of which they divulge in parts. It can get frustrating for the business loan seeker in no time, and patience would be required.

Credit record and score matters

If your business has been unfortunate enough to not be able to service a loan properly, have part defaults etc, then it becomes very difficult to secure further loan, resulting in stymied businesses.

Down payment and collaterals requirement

Most of the time, down payment and/or assets as collateral needs to be furnished, resulting in manifold increase of risk. If your venture is not successful, you will definitely loose the collateral or down payment, along with civil court cases. Thus, along with your business, your personal reputation and assets are at risk as well, when you go for a loan.

Where Are Small-Business Loans Available?

Just do searches in the Google search box below, along with your area. You will be presented with many options, which you will need to explore.

Getting a business loan from a bank or lender involves a well-prepared application and a clear understanding of the loan process, whether SBA or not. Here's a step-by-step guide to help you secure a business loan:

Assess Your Needs: Determine the purpose of the loan and the specific amount you need. Whether it's for startup costs, expansion, working capital, or equipment purchase, having a clear purpose will help you choose the right type of loan.

Review Your Credit Profile: Check your personal and business credit scores. Lenders use credit scores to assess your creditworthiness. A strong credit history increases your chances of loan approval and better terms.

Prepare a Comprehensive Business Plan: Create a detailed business plan that outlines your company's history, objectives, financial projections, and how you plan to use the loan. A well-structured business plan demonstrates your commitment and ability to repay the loan.

Gather Financial Documents: Lenders will require financial documents, including tax returns, bank statements, profit and loss statements, balance sheets, and other relevant financial records. Have these documents organized and ready for submission.

Research and Compare Lenders: Explore different lenders, including traditional banks, credit unions, online lenders, and Small Business Administration (SBA) lenders. Compare loan terms, interest rates, fees, and repayment options.

Choose the Right Loan Type: Select a loan that aligns with your business needs. Common types of business loans include term loans, lines of credit, equipment financing, and SBA loans.

Prepare a Loan Application: Complete the lender's loan application form and provide all requested documents. Double-check for accuracy and completeness before submission.

Meet with the Lender: Schedule a meeting with the lender to discuss your business and loan requirements. Be prepared to answer questions about your business and financials.

Provide Collateral (If Required): Some lenders may require collateral to secure the loan. This can be business assets, real estate, or personal assets. Make sure you understand the risks associated with providing collateral.

Wait for Loan Approval: The lender will review your application and make a decision. This process may take some time, so be patient.

Review and Sign Loan Agreement: If approved, carefully review the loan agreement, including interest rates, repayment terms, and any additional fees. Seek legal advice if needed before signing.

Receive Funds and Repay the Loan: After signing the loan agreement, the funds will be disbursed to your business account. Make timely repayments according to the loan terms.

Remember, each lender has its own criteria for loan approval, so it's essential to present your business in the best possible light and be transparent about your financial situation. Building a strong relationship with the lender can also improve your chances of future financing when your business needs arise.

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