Every small business is different. More than half are home based, a quarter stay open for more than 15 years, and all of them have unique needs. Statistics show that 63% take out loans in the interest of improving cash flow and that 38% take them out to maintain inventory. What do they all have in common? They need help getting the ball rolling. Whether it’s commercial equipment financing, merchant cash advances, or traditional business loans, the many types of small business loans out there are essential for helping American companies to grow.
It’s easy for small business owners to feel overwhelmed by the many types of small business loans that are available. Here, we’ll look at some of the most common types of small business loans, helping to clarify the confusion many business owners feel.
SBA Loans: The Small Business Association backs a few types of small business loans offered through local banks and agencies. These loans are versatile and can be used for buying equipment, inventory, furniture, or supplies.
Line of Credit Loans: These short-term loans allow business owners to access a certain amount of money that is deposited into the business bank account on an as-needed basis. Interest is paid on that amount, and the money can be used for purchase of inventory or to cover operating costs, but cannot be used to buy real estate or equipment.
Revolving Lines of Credit: This concept is similar to that of line of credit loans. Instead, however, when a borrower repays the credit, he or she is allowed to take out the same amount.
Loans from Friends and Family: This is often the lowest-interest repayment plan you can get, though there is substantial risk involved in borrowing from loved ones. If you opt to borrow from a friend or family member, set up a repayment schedule and stick to it carefully.
Angel Investors: These usually come into play after you’ve gotten through your company’s first year. Angel investors often demand high equity, high return on investment, and a well-defined five-year plan.
Choosing between the many types of small business loans is no easy task, but it’s essential for many small businesses that simply can’t get by without a little aid. Think long and hard before deciding which loan type is right for you.