If you run a small business in the United States, you are going to need a small business loan at one point or another. The real question is what type of business loan should you opt for? After all, so many different kinds of loans are available out there, and it may get confusing for any business owner to decide on which one suits their business needs the best.
As such, it is essential to keep yourself up to date with the right information from the loan industry, so that you may make an informed decision regarding the small business loan you should apply for to sustain your business. Here is a short guide on how to choose the right small business loan.
Types of Loans
Before you sit down to assess which business loan best fulfills your business requirements, you need to know about all the different types of loans that businesses most commonly seek.
- SBA loans: lenders issue these, and they are backed by the government arm of the Small Business Administration (SBA) that encourages lenders by giving them information on the types of loans and the large portions of loan people can choose for their growing business. The three most common SBA loan programs are:
- SBA 7(a) loan program
- CDC/504 loan program
- Microloan program
- Conventional Bank loans: These range from short-term (3 to 18 months) to medium term (1 to 3 years) and offer lower interest rates, but take longer to finance the business as compared to alternative loans.
- Alternative loans: Alternative lenders that are available outside the conventional bank loans sphere provide these. Generally, online lending platforms such as Orumfy are the best sources to apply for alternative loans, as they provide transparency and ease in the process. They generally provide faster financing but charge higher APRs as compared to traditional loans. Types of loans included in alternative loans are:
- Equipment based lending
- Lines of Credits
- Merchant Cash Advances
- Invoice Financing
- Startup Loans
How to Choose the Right Loan
- Know Your Business Needs: Once you know the different types of small business loans offered, it is time to assess your business. Ask yourself, why do you need the loan? Do you need it to expand operations or to manage expenses? Perhaps you would like to have a cushion in the case of an emergency. Whatever the case may be, the reason for taking the loan will greatly dictate the type of loan you should take.
- Know the Repayment Terms: You do not want yourself suffocated by frequent and heavy repayments, so it is important to focus on them closely before choosing the loan. The repayment amounts determine how much you will pay back monthly/yearly. Too high and you may not be able to pay back, too low and you may take longer than needed to pay off the complete debt.
- Know the Interest Rate: Sometimes called the Annual Percentage Rate (APR), it determines how much of the interest you will have to pay per year/month. Different loans have different interest rates, depending on how fast they provide the financing and the amount of loan they provide.
With this information at hand, you should be able to make the final choice on the type of small business loan you should apply for to help your business. Make sure that you research well, and choose platforms that offer you different loan options, with the best interest rates.