What Are The Types Of Small Business Loans In The USA?

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types of small business loans

There can be a lot of reasons why a small business might require loans. On the other hand, there are a lot of options when it comes to availing of loans. Although having many options for loans is useful, at times of need, business owners cannot decide which one is the best for their businesses. Hence, having a good idea of the types of small business loans is always handy.

According to a recent article by CNBC, “Small business loans can be geared toward specific needs, like 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 invoices.” Furthermore, based on the type of loan, the fees, terms, loan limits, and interest rates fluctuate on the basis of the lender, borrower, and market situation.

If you what to know what types of small business loans there are, you will need to read through to the end of the article. Apart from providing you with a brief idea about the different types of small business loans available, we have also offered you some of the advantages and disadvantages of each type of loan.

Major Types Of Small Business Loans

Major Types Of Small Business Loans

Before you know about the major types of loans for small businesses that financial institutions and banks offer, you also need to focus on the factors that determine a loan. According to Forbes, “Factors like your qualification requirements, loan purpose, and desired loan terms can all influence the type of business loan that’s best for you.” 

So, before you decide which loans are the best options for you, here are some of the major types of small business loans you need to know of:

1. Term Loans

Term Loans

This is the traditional type of loan available for small businesses. Once you borrow the loan from the loan provider, you will need to repay these funds within a fixed time frame. If you have a good business credit score, you will be able to get lower interest rates on term loans from banks and other lenders.

2. Business Lines Of Credit

Business Lines Of Credit

These loans are a type of financing with the help of which you can borrow money as well as pay your interest on that amount of money. It works a lot like credit cards. Here, you will have a credit limit, and as you use the credit, you are repaying the owed money. After a period of time, the draw period expires, and then you will not have access to the credit line.

3. SBA Loans

SBA Loans

As per Forbes, “SBA loans are business loans that are guaranteed by the U.S. Small Business Administration (SBA). Because the federal government guarantees to repay up to 85% of the loan amount if a borrower defaults, it reduces the level of risk involved for the lender.” The most popular types of SBA loans include SBA 7(a), SBA 504, and SBA microloans.

4. Invoice Factoring And Financing

Invoice Factoring And Financing

Invoice financing is a great option if you are a small business owner who struggles to receive on-time payments. According to CNBC, “Through invoice factoring, you can sell unpaid invoices to a lender and receive a percentage of the invoice value upfront. With invoice financing, you can use unpaid invoices as collateral to get an advance on the amount you’re owed.”

5. Equipment Loans

Equipment Loans

If you do not possess the capital for equipment purchases for your small business, then you must go for equipment loans. If you need capital for machinery, vehicle, computers, furniture, and other equipment, you will need to get equipment loans for your small business. In case you fail to repay your loan, then you will need to return your equipment as collateral.

6. Real Estate Loans

Real Estate Loans

If you have a small business and you want to finance a property for your office space, retail, or warehouse, you will need to avail yourself of a real estate loan. These are term loans that will enable you to buy or rent commercial property or expand your existing business property for growth.

7. Startup Loans

Startup Loans

These types of loans are mainly of small amounts and are a great option for small businesses since the interest rates are not very high. According to Forbes, “This type of cash advance requires you to borrow against your future sales. In exchange for a lump sum of cash, you’ll repay it with either a portion of your daily credit card sales or through weekly transfers from your bank account.

8. Franchise Loans

Franchise Loans

You can get your small business ownership quicker with the help of becoming a franchisee. This is a great option as you do not need to build your brand from the start. To pay the upfront fee to start the franchise, you will need to avail yourself of such a loan. Hence, it will be easier for you to get up and run, as some franchises will also help you with funding offers.

9. Merchant Cash Advances

Merchant Cash Advances

These types of small business loans also come at a high rate of interest. According to CNBC, “This type of cash advance requires you to borrow against your future sales. In exchange for a lump sum of cash, you’ll repay it with either a portion of your daily credit card sales or through weekly transfers from your bank account.” The higher rate of interest on these loans makes them risky. Although these loans are available quickly.

Summing Up

Hence, by reading this article, you must have already got a good idea of the types of small business loans available in the USA. However, with such a large number of options available in the financial world, many business owners find it overwhelming to choose the right option for their business.

If you want to choose the right type of small business loan for yourself, then you must consider evaluating your business needs. This way, you will be able to narrow down your options. Furthermore, you must also research the best lenders who can offer you small business loans at reasonable interest rates and better offers. By ensuring this, you can avail the best loan for your small business.

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