These loans are secured by the Small Business Administration (SBA), and often referred to as SBA loans. SBA loans come with low interest rates and are available to borrowers whose credit history may disqualify them from traditional bank loans. However, SBA loans come with high eligibility requirements and restrictions on how the funds are used.
This type of funding solution is great for those that need to fulfill a short-term need, fast. Invoice factoring allows businesses to sell a portion of their outstanding invoices to a lender. This method of funding usually comes at a fairly steep price, but it can be an effective solution for companies operating in seasonal or cyclical industries.
Inventory or equipment financing is an option that allows you to get a loan to purchase inventory or equipment. The inventory or equipment purchased will typically serve as the collateral for the loan.
Lines of credit
Like credit cards, a business line of credit allows you to access funds whenever you need it in perpetuity (subject to regular review). Once your credit line is established, you’ll have fast access to cash, reasonable rates and the flexibility to use the funds whenever you want. However, securing a line of credit -especially from a traditional lender- can require a lot of time and documentation.
Merchant cash advance
An MCA could be a good option if you need a small amount of funding immediately and plan to pay it back quickly. Bad credit typically isn’t an issue with MCA’s and approval usually takes just a few hours. Rates and fees are extremely -sometimes shockingly- high.
The average loan amount for microloans is about $13,000. They are available via nonprofit community-based organizations and are backed by the SBA. They’re a good option for companies that need a small loan void of usurious rates, with little-to-no borrowing history.
Personal business loans
Personal loans are generally easier to secure than business loans and don’t typically require collateral. However, the rates may be higher and the loan limits may be lower than a business loan. A personal loan won’t help you build your business credit.
Otherwise known as traditional business loans or bank loans, these tend to have low interest rates, but are relatively difficult to procure. You must have excellent personal and business credit history to get approved, and the application process is usually extensive and slow.
Also known as ‘startup capital’ or ‘seed money’, startup loans are for newly launched businesses or businesses looking to open operations in the near future. Startup loans are used to fund new businesses, and can be used for office space, inventory, manufacturing, or other business needs.