When you own a small business, sometimes it can feel like you don’t have the same opportunities as larger corporations. But while your business may not have as much capital as other companies, you’re not as limited as you may think when it comes to financing. Countless loan types are available for small businesses, and they can help you reach your business goals smoothly. Conventional small business loans are far from the only solution for your company’s needs.
The Pros and Cons of Small Business Loans
One of the first loan types that small business owners consider when thinking of financing are SBA loans. You can obtain small business loans for a variety of objectives, including real estate. That’s one of the biggest benefits: being able to qualify for a large loan that offers amazing interest rates.
SBA 7(a) loans are designed for small-to-medium items. They can help with remodeling projects or allow your company to purchase equipment, from skid loaders to work tools. SBA 504 loans cover larger items and needs, including new building construction, large-scale expansion projects and heavy construction machinery. Having up to 25 years to pay off these items is another huge plus for your company’s finances.
Along with benefits come a few downsides. First, because SBA financing is backed by the Small Business Administration, companies have to meet some fairly strict requirements. Also, it can take several months before you get approved for the funds.
The Advantages of Traditional Business Loans
You can also go the route of conventional loans or mortgages. Banks provide a variety of loans for business acquisitions, real estate, equipment, and working capital. These traditional loans often provide significant funds with low-interest rates.
Approval is faster than with SBA financing, but you usually also need to have some type of collateral available. Only businesses that have been operating for more than two years can qualify, and your credit score must be either good or excellent.
The Flexibility of Lines of Credit
The requirements to obtain a line of credit are roughly equal to a traditional loan, but the type of financing couldn’t be more different. Instead of a lump sum, your company gets access to revolving credit. You only pay interest on the amount withdrawn, making this option useful for emergencies and for boosting your company’s cash flow. The downside is that fees are higher than with small business loans, and you need a strong influx of revenue.