Getting a business loan to turn a business idea into a reality can be overwhelming. This is especially true if there is no proven record of success. One way to simplify this task is to know the different business loans available to fulfill various needs and criteria.
Traditional Loans
Getting a loan from a traditional lender such as a bank or a credit union is the first option that comes to mind. Although this option is disdained these days, banks are yet lending and helping startups and small-scale businesses.
You can opt for this lending if your idea is not experimental, is not out-of-the-box, and it has a good chance of success.
Small Business Administration (SBA) Loans
There are a couple of SBA loans to aid business owners in obtaining working capital. Some of these are 7(a) for businesses with special requirements, microloans offering small amounts to startups or for expansion, and 504 loans offering a fixed rate and longer terms ideal for purchasing or fixing assets such as equipment.
Even SBA-backed PPP loans were offered during the COVID-19 pandemic, which fulfilled payroll, rents, mortgage interests, and utility payments. Currently, it is not on offer, but there is a top alternative to PPP loans.
These loans are quite popular these days and are similar to the standard term loans that several private lenders offer. The most significant difference is in terms of conditions; the SBA lenders have more favorable terms than the standard lenders to those who struggle to secure small business financing, such as minority entrepreneurs.
The term is likely longer than a traditional one (nearly 25 years), and the amount is also smaller. This kind of loan is somewhat more forgiving than other options when it comes to checking credit scores. Although wallet- and term-friendly, it can take nearly three months for the amount to come in your hand.
A few benefits of SBA loans are competitive terms comparable to non-guaranteed loans, lower down payments, no collateral needed (in most cases), flexible overhead requirements, and counseling and support to run the business.
Certain eligibility guidelines exist, such as purely profit business, having equity, and exhausting other financing options.
Business Credit Cards
A business credit card is an effective source of funds for a new startup. This is because most issuers of such cards do not consider your business experience.
They are happy to issue a credit card if you fulfill their few requirements, including good personal credit scores and adequate income from business and non-business sources. While no collateral may be needed, a personal guarantee may be on the requirements radar of the lenders.
A business credit card is not just a convenient way to take care of your purchases but also facilitates a line of credit, a kind of financing. It aids you in being on the right foot by distinguishing personal and business expenditures and setting business credit. This makes a business credit card truly a viable replacement for startup loans.
Crowdfunding
This is the kind of source that is widely relied upon when it comes to trying a new idea for getting a business loan. You need the right campaign to raise funds for your creative business idea. In return, there is nothing but only the rewards for the sponsors once the idea has become a reality.
The campaign may make you invest in writing an effective piece of content and generating a persuasive video. A significant marketing effort is involved, but the resulting reward gives you a good future reach to diverse customers for your business.
To gain capital through crowdfunding, you need to share your goals and objectives with a big group of people with the expectation that they will help you fund. There are three primary types of crowdfunding for startup businesses: investment, debt, and rewards.
No matter which type you choose, crowdfunding platforms enable anyone with a vision to collect funds for a new venture. Crowdfunding is a disruptive prospect, but it has proven to be a boon for those who want to set up their dream business without inviting debt.
Family Funding
This is another common source of getting a business loan and is quite popular among entrepreneurs who are freshers or have started with some sort of small-scale business. Although common and popular, taking such a personal loan for business is similar to speculation.
You need to compute the total expenditure until the business can start giving you profits. This requires a lot of estimation and effort.
You may start with personal funds, but it is advisable to set up business credit simultaneously. This is important if you wish to gain more loans/funds. After all, a business should be able to fund its requirements without relying significantly or heavily on personal assets.
Angel Investors
These entities are not corporations or groups, but individuals looking beyond quick profits and usually lend small amounts. They tend to serve tech companies, but angel investors are looking for diverse business opportunities.
For application, you need an effective business plan and prove the capacity to scale your business. Otherwise, getting a loan from an angel investor could become difficult.
Conclusion
Money is inevitable for establishing or expanding your business, for which business loans are essential. There are many types of business loans, as discussed above, varying as per the source. Choosing the right source or type matters, which you can decide as per your requirements, risk factors, and budget.
