- Small loans can help you start your journey as an entrepreneur.
- SBA loans are best when you are not in a hurry to get a loan.
- Term loans are the most common type of business loans.
As a budding entrepreneur, you may come across times when there is an urgent need for money to push a little farther or to get over the last hurdle toward profitability. At the same time, you also need it quick and fast. So, knowing how to procure a small business loan during such crunch time is crucial.
Merely taking a loan in a huff may not help as different loans have different criteria of repayment, interest rate, and disbursal procedure. Randomly procuring a loan without considering its viability to your business requirement can be lethal. So, before you take a loan, always weigh the pros and cons, and its suitability for your business.
Here, we look at some of the best small business loans to help you tide over such a situation:
1. Term loans
These are the commonest loans for small businesses wherein a lump sum of money can be repaid over a fixed period. There will be fixed monthly payments with interest included over and above the principal amount/balance. One can use this loan for a variety of needs in the business.
2. Business lines of credit
This is similar to a credit card. In business lines of credit, you get a revolving credit limit, which can be accessed via a checking account. You can withdraw the exact amount you require and pay interest on the withdrawn amount. It is unlike a term loan, where interest is paid on the entire loan amount. This kind of loan is best when one is not sure about the precise requirement of money for a purpose.
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3. Invoice factoring & invoice financing
These types of loans are perfect when you are struggling to receive your payments on time. In an invoice factoring loan, one can sell unpaid invoices to a lender and get a percentage of the invoice upfront. The lender acquires the right or control over collecting payments. In invoice financing, one can use the unpaid invoices as collateral to procure a loan. In this case, the lender does not collect the invoice payments, but the borrower must collect and repay the loan or borrowed amount.
Microloans are usually very small loans that provide US$50,000 or even less. These loans are best suitable for small and new businesses that don’t require big amounts. Most of these loans are provided through NGOs or the government. To become eligible for such loans, one must put up collateral like business equipment, personal asset, or real estate.
5. SBA loans
These loans are low-cost, government-backed loans, which are quite popular among small business owners. However, applying for such loans can be very tedious, and there can be long delays in getting the actual funding. It might take up to three months to get approval and receive the money. It helps when one is not in a hurry to get the cash as these loans have low-interest rates and fees.
Every business or every entrepreneur has different requirements for funding. So, one should evaluate the entire process before applying for a small business loan. Knowing whether it is suitable for a particular objective is very important to utilize these small loans best and get on with growing a business.