The hardest part of starting a business isn’t writing up a plan or hiring employees. It’s trying to find funding. Most people can’t pull the finances out of their pocket.
That means the only option is to take out one of the many types of business loans available. Depending on your credit score, there should be a bank that’s willing to work with you.
The problem is finding a loan with a competitive interest rate that is compatible with your business model. You may end up having to make a few compromises. Check out this guide to weigh your options.
The most common type of loan in the financial industry is a term loan. Once you’re approved, you’ll get a single lump sum of money that you can spend on your business expenses.
Speaking of the approval process, it’s pretty quick, depending on the lender you go through. Term loans also allow a small business owner to borrow more money than most other types of loans.
The downside is that you may need a higher credit score to get approval. You may also have to put something up for collateral. If you don’t pay back your loan, you’ll lose whatever you promised to the bank.
Business Line of Credit
A business line of credit loans works sort of like a credit card. The bank will give you a certain amount of money that you can pull from whenever you need it.
These loans are great for providing a little cushion in the event you go through a cash drought. It can also give you funding in an emergency.
A lot of professionals put their reoccurring expenses on their business line of credit. It takes some stress off of keeping the lights on.
Many lenders give smaller loan terms to new business owners. If your goal is buying a business and expanding the franchise, taking out a line of credit might not be the best option for you.
The idea of an SBA is to make commercial lenders feel a bit better about giving a small business owner a loan. The government agrees to pay back a portion of the loan in the event of a default.
These loans often come with the best interest rate and longest repayment terms. It’s not the best for those who need funding ASAP. You often wait months for approval.
The other issue is that qualifying for an SBA loan can be rough. You’re going to need to have an excellent credit score to get the money you need.
The Different Types of Business Loans Available to You
One of the hardest parts of being a company owner is paying for your building and equipment. Most people have to take out one of the many types of business loans to get funding.
Some lenders have some stringent requirements that you’ll have to meet. Even so, there’s an option out there for business owners of all credit scores and needs. All you have to do is look.
For more tips that will help you pay for your business idea, visit the Finance section of our blog.