Looking to set up a new business or borrow money to expand a growing company? You may be wondering what types of loans are available and how hard it is to get a business loan.

Financing a new venture can be challenging and it can also be difficult to decide which avenue to pursue if you’re growing an established company. In 2021, 34% of small businesses in the US applied for a loan. In this guide, we’ll explore different types of business loans and share tips to help you find the best small business loan for your needs.

Understanding Different Types of Business Loans

There are multiple types of business loans available to companies in the US. Whether you’re launching a startup, or you’re looking for a loan to expand your small business, here are some common types of business loans to explore:

1.  SBA Loans

A popular choice for small businesses, SBA loans are backed by the Small Business Administration. These business loans provide peace of mind for lenders because the Federal Government agrees to pay back 85% of the loan if the loanee defaults. There are various types of SBA loans. Popular examples include SBA 7(a) loans, SBA 504 loans and SBA microloans.

Pros and cons include:

Pros

• One of the most affordable ways to borrow money for small businesses
• Ideal for small business owners looking to grow their company or fund improvements or expenses, such as equipment
• Borrow up to $5 million with SBA 7(a) and SBA 504 loans

Cons

• Most individuals need a good credit score to secure an SBA loan
• The application process can be time-consuming
• There are strict borrowing criteria
  
  

2.  Term Loans

Term loans involve borrowing money from a bank or an online lender and paying back the money over an agreed period or term (usually at least 5 years). Borrowing conditions vary according to the lender, but in most cases, there is a fixed interest rate. Term loans may be suitable for small business owners looking to expand, as well as startup owners.

Pros and cons include:

Pros

• Flexible borrowing options due to the wide range of lenders
• Fixed terms and interest rates make budgeting easy
• The application process is usually simple and fast, especially for online lenders

Cons

• Interest rates may be higher than other types of loans
• Applicants may need to provide a guarantee or collateral to apply for a business loan

Short-term loans offer an alternative to long-term loans, providing rapid access to funds. Although it can be beneficial for business owners to access cash quickly, interest rates tend to be significantly higher for short-term loans. In some cases, the qualifying criteria are less strict, making short-term loans more accessible to those with a low credit score.

3.  Startup Loans

If you’re setting up a new business, startup loans can save you time and effort if you need to borrow money. This type of loan may be a better option than other loans if you don’t have an established credit history, or you are in the first few weeks or months of trading. In some cases, when you apply for a loan, for example, an SBA or long-term business loan, there are minimum requirements in terms of trading time frames. Startup loans offer a more accessible alternative.

Other types of business loans include:

• Working capital loans: These loans offer access to cash to cover everyday expenses and are popular among seasonal businesses.
• Equipment financing: These loans cover the cost of equipment, technology and materials and are popular among medium-sized and large companies.

Exploring Types of Loans for Business Growth

If you’re looking to borrow money to grow your business, there are several options. Business loans for growth include:

• SBA loans
• Short-term loans
• Commercial real estate loans
• Equipment financing
• Term loans

To help you find the best loan, consider these key factors:

1. Your financial position
2. The amount you want to borrow
3. The stage of business: How long have you been established and what is the next step?
4. The term: Are you looking to pay the money back in the short or long term?
   
   

Small Business Loans for New Businesses

If you run a fledgling business, it’s a great idea to focus on loans designed for new ventures and startups. Examples include:

• Microloans
• Term loans
• Startup loans

To find a loan that is right for your new business, consider the following:

1. How much money you need to borrow
2. How fast you need the money
3. How long you need to pay the loan back (short or long term)
4. Interest rates
   
   

Conclusion

Many business owners borrow money to kickstart a new venture or expand their companies. If you’re applying for a business loan, it’s important to explore suitable options and choose a loan that matches your objectives and borrowing needs.

Need Help Finding a Business Loan?

For help and advice about finding the right business loan, don’t hesitate to contact American Capital Express.