When you need working capital for your small business, your options are numerous. As it turns out, many lenders make their livelihoods out of offering these types of financial arrangements to entrepreneurs. As a result, your challenge becomes how to find the best loan companies and to choose the one that is ideal for your business.
TYPES OF LOANS
Before you can come to a decision about which lender to work with, you need to understand the various types of loans available for small businesses. As you review the information below, ask yourself where your company fits and which vehicle would best help you to meet your needs.
• Small Business Administration (SBA) loans. The SBA, a federal agency, collaborates with lenders to support new and expanding businesses. To that end, they back a portion of your loan and match you with one of their partner lenders. The most common types of SBA loans are 7(a) for many basic needs including expansion, real estate, working capital and even for refinancing existing debt), microloans (can also be used for various purposes but are smaller and have shorter repayment terms), CDC-504 Loan Program (long-term fixed-rate loans for real estate and equipment. The SBA covers as much as 40 percent of the loan, with an approved lender taking up as much as 50 percent and the borrower funding the remainder), and disaster loans to be used to buy, repair or replace assets that were destroyed in a declared disaster.
• Traditional loans. While SBA loans can often be exactly what an entrepreneur needs, they can have rigid requirements and often demand that you jump through a series of hoops before you are accepted. For company owners who want more flexibility or are not ideal SBA loan candidates for any other reason, these vehicles can be ideal. Traditional loans fall into several categories: equipment loans (for computers and machinery with monthly payments and the equipment as collateral), line of credit (like a credit card in that it is available when you need it, and you don’t make payments on what you are not using), working capital loan (short-term shot in the arm that gives you the temporary cash you need to stay afloat while exploring more stable options), and merchant cash advance (based on your monthly revenue and is paid over the next month, generally with steep terms).
THE BIG DECISION
Now that you have a general idea of the types of loans that are available to you, it will be much easier to determine the best loan companies that can furnish you with your choice. As you carefully investigate each company, pay attention to objective customer testimonials. Furthermore, be sure to have a thorough understanding of the interest rate the company proposes to charge, any application fees you will be expected to pay and the repayment terms you will be required to live with. Rushing into your final decision could leave you saddled with a second-rate lender or a heavy burden of costs that you will have a hard time carrying. During the entire process of selecting a lender, keep in mind that you are entering into a partnership that will most likely last for several years. Consequently, don’t be afraid to give this selection process the time and careful attention it deserves.
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