Here’s our updated guide to few business financing options you should know about as you seek funding for your small business. And for those who want to dive deeper, we’ve got you covered with links to our detailed and comprehensive guides to each type of business funding on our list.
1. Bank loans and SBA Loans
The first type of business financing that usually comes to mind when you hear the term ‘small business loan’ is a traditional bank loan. Bank loans come in many forms (short-term, long-term) and can be used for a wide variety of purposes (working capital, expansion, equipment purchasing, commercial real estate). Sometimes these loans are secured with collateral; sometimes not. The most important things to know about small business bank loans? You are going to need to demonstrate stability (in the form of revenue, for example).
As for the best place to get a bank loan, well, that depends on your business needs — each bank has its own set of offerings and requirements. Regardless of where you go for a loan though, you are likely to encounter the option to apply for a Small Business Administration (SBA) loan. A popular subtype of bank loans, a large portion of each SBA loan is guaranteed by the SBA, a government agency that provides information and resources to entrepreneurs to help them develop strong businesses
This SBA guarantee makes the idea of lending to small business owners more appealing to some banks, but the loans can be difficult to get because of the stringent requirements (in order to qualify for an SBA loan, you need to have a decent credit score, measurable cash flow and a solid business plan, among other qualifications). Despite that, SBA loans are attractive to many small business owners because they offer a lot of options and flexibility in terms of how the funds can be used. What’s more, the SBA also offers a variety of loan options for minority business owners and those that operate in underserved markets.
Considering an SBA Loan and wondering whether it is the right type of business funding for you? Get all the specifics in our super-detailed Guide to Understanding SBA Loans.
2. Credit card financing
If you need to purchase equipment or materials for your small business, credit cards — or, in a crunch, credit card cash advances — are easily-accessible options that save you the trouble of applying for some other type of small business loan. Credit card financing, however, can be risky and you should strongly consider only using it for short-term needs. If you go this route, consider paying off the card in time to avoid hefty finance charges and look for cards that offer cash back rewards or airline miles.
3. Equipment financing
Some lending companies specialize in financing the purchase of business equipment. Another option? Ask the company you’re buying the equipment about financing — many offer their own financing programs.] If you’re considering equipment loans or financing for your business, check out our comprehensive Guide to Equipment Loans & Financing.
4. Peer-to-peer loans
Peer-to-peer lending sites are online marketplaces where businesses and individuals can obtain loans from individual investors. The online marketplace manages the transaction, serving as a kind of escrow service, and takes a fee in return. This can be a good way to get a small, short-term loan if other methods haven’t worked.
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