Businesses large and small may need to apply for loans at various times for many different reasons. Not every business will qualify for every type of loan, so it’s important that you understand what financing options exist and which are the most likely to be useful for your business’s needs. Here are six types of business loans you may not know are available to you.
1. Startup Loans
Startups often need more funding than established businesses because they may have smaller amounts of resources and volatile or non-existent cash flows. Loans and other financing options can help startups establish themselves, build their production capabilities or begin competing in their chosen markets. Unlike traditional small business loans, startup loans are available to new businesses without long-term credit histories but they can be expensive to pay off, with high variability in available loan amounts and interest rates.
2. Loans for Veterans
Some lenders offer small business loans for vets. The size of a loan for a veteran-owned business typically depends on the amount of money the applicant is seeking and a review of the applicant’s credit history or the credit history of his or her business. Business loans for veterans may also be available to transitioning and active-duty service members, reservists, and sometimes their family members. Applicants must check the lender’s requirements to see whether they qualify. If you’re a veteran seeking a business loan, you can request resources and assistance from the U.S. Bureau of Veterans Affairs.
Not every funding need is large. In such a situation, you may seek a microloan for your business. A microloan is a small loan, capped at $50,000, with a short-term repayment period. These loans are primarily funded by mission-based lenders such as nonprofit organizations. They tend to be available to certain types of startups and business owners in underserved communities, such as minorities and women. While microloans have relatively low-interest rates, if they have interest rates at all, they may require applicants to offer collateral or personal guarantees.
4. Commercial Real Estate Loans
If you have or want to have a physical presence for your business, you need to own or rent a property. Whether you’re constructing your premises from scratch or operating in a pre-existing building and whether you’re opening your first brick-and-mortar location or expanding your business, you need funding to achieve those goals. Business owners may apply for commercial real estate loans. A commercial real estate loan is similar to a mortgage, in that the property you’re buying is your collateral. Your interest rate will depend on your credit history and the amount you qualify for may depend on such factors as the property’s value and your business’s cash flow.
5. Working Capital Loans
Working capital loans are meant to fund the daily operations of a business. They are considered short-term loans, but longer terms may also be available. Working capital loans tend to be useful to seasonal businesses or businesses that operate in areas with high levels of tourism during certain seasons. They help preserve companies until business picks up and cash flows increase again. Working capital loans are highly dependent on credit histories and reports.
6. Equipment Financing
Equipment financing loans are meant specifically for equipment purchases. This type of loan may have a lower interest rate because the equipment is your collateral, but you still need to have a good credit history to qualify for most financing options. The amount of funding you qualify for will likely depend on how much equipment you need and its total cost. Repayment plans and terms may also vary but rarely surpass twenty-five years.
The loans your business qualifies for may depend on several factors. Common factors include your business’s size, what you want to finance, how much money you need, and your business or personal credit score. Make sure you include all required records and paperwork in your loan application so lenders have all the information they need.