Exploring The Different Types of Business Loans in 2021. Whilst getting a small business loan can be quite complicated, there are a plethora of steps that you can follow so as to put yourself in a favourable position during your business’s application process.
Getting a small business loan (generally) entails applying with a business lender (such as your business’s bank or credit union) and providing all of the legally required documentation- as well as your comprehensive, detailed business plan.
Doing this correctly- and consequently acquiring an adequate source of financing, can play a pivotal role in your business’s long term sustainability, as business loans can be essential in resolving any cash flow problems that may arise, and can also guarantee that you will be able to initiate certain growth-related opportunities that you would not be able to otherwise (due to lack of significant capital).
Below we will carefully examine a recent guide produced by The Really Useful Information Company (TRUiC), which analytically delineated the variety of business loan options which are available for owners in 2021.
Understanding the Different Types of Business Loans
As there are a variety of different types of business loans, it is important to be able to distinguish between them, and consequently to be able to acknowledge which one is best suited towards your business’s industry, size, and entity structure.
SBA 7(a) Small Business Loans
All SBA 7(a) small business loans are guaranteed by the Small Business Administration. The application process involves liaising with a variety of different established lenders who grant loans to the businesses which can satisfy the rigid requirements of the SBA.
The benefits of these types of loans are really tailored to startups and small businesses- who may not have had an adequate amount of type to adequately develop their business’s credit score yet, but still require significant capital so as to expand and grow sustainably.
The strict SBA requirements that businesses must follow in order to be eligible for an SBA 7(a) loan include:
A requirement to operate for-profit (non-profit organisations are not eligible for SBA 7(a) loans).
- A requirement to be a small business as set out by the SBA.
- A requirement to conduct your business’s operations within the U.S
- A requirement to have attempted to rely on alternative financial resources (such as your own personal assets) before attempting to obtain an SBA 7(a) loan.
- A requirement to have already invested a ‘’reasonable’’ amount of equity into your business.
Working Capital Loans
Working Capital Loans are revolving credit lines which (generally speaking) are extended through a commercial bank. They can be made available for practically any business purpose, and the borrowing business has the added benefit of only having to pay interest on the money they use- rather than on the total money borrowed.
Advantages of working capital loans include:
a) allowing business owners to handle cash flow crises extremely quickly- due to increased access to a wealth of capital,
b) allowing businesses to borrow and repay any loans they are eligible without a significant amount of procedural rigmarole- this can significantly expedite the process, and
c) allowing business owners to keep full ownership of their business- as capital loans seldom (if ever) require owners to sell a share of their company in exchange for financing.
Business Term Loans
Business term loans can be described as one of the most ‘’conventional’’ loan types on this list- where a business opts to borrow money (in lump sum form) from a traditional bank and then is required to repay it back over established intervals over a specified period of time.
Business term loans can involve the following advantages for small businesses:
Increased Flexibility- as business owners remain entirely free to use their newly acquired funds for whatever they want.
- Increased Predictability- as all repayment deadlines are pre established before the loan is accepted and cannot be consequently changed without approval by both parties.
- Improved Business Credit- if done early on in a business’s life cycle, this can allow business owners to potentially borrow an even larger sum of money in the future.
A Final Take
All in all, there are many different types of business loans- all of which are tailored towards different business sizes and specificities.
If you are currently interested in applying for a loan, one of the most important things that you can do is ensure that you build your business’s credit score adequately.
