Choosing the right small business loan for starting a business requires considering a lot of factors in addition to knowing the different types of business loans. Here’s what business owners need to know about the best small business loans for every kind of business.
Business owners don’t have to worry about picking the wrong kind of loan for their business — there are a lot of loan options available in the market. However, it is imperative for businesses to pick the right kind of loan as applying for the suitable loan option is worth the risk in the long run.
Some of the most common kinds of business loans include:
- Equipment financing
- Property assets
- Personal loans
- Micro business loans
- Credit lines
A lot of business finance lenders are providing loans for startup businesses in need of funding for purchasing equipment needed for the business.
Getting approved for a business loan in the equipment financing line is also pretty easy, provided that the business owner has a good credit history and properly explains to the lender why an equipment financing loan is needed.
Lenders frequently approve these kinds of loans because they are able to mitigate late payment risk using the equipment’s residual value. Equipment financing loans usually have a maximum loan amount of $30,000. Anything higher might require business owners to submit to their lenders' documentation regarding their trading history.
Property asset loans are ideal for business owners who have commercial and/or residential properties to spare. Lenders typically loan up to 80 per cent of the total property’s value.
Businesses with good credit history and businesses with current forward orders that can back up the authenticity of the business definitely have an edge compared to other businesses when applying for a property asset loan.
Once granted, business owners can have access to property asset loans which can go as high as $2 million.
Sticking to a personal loan is probably one of the easiest ways for business owners to have access to a business loan. Banks and other financial institutions usually offer these kinds of loans.
However, small business owners might find it hard to secure a personal bank loan unless they have an impressive credit history and a business plan showcasing the business owner’s acumen in their chosen industry.
If a business manages to secure a personal loan from their bank, they gain access to personal loans that can amount to $30,000.
However, business leaders must also realise that higher loan amounts mean higher interest rates—business must ensure to repay their loans on time to avoid facing possible penalties and getting swamped in loan debts.
Micro business loans
Business owners can also consider applying for micro business loans amounting up to $20,000.
Before approval, the business must prove that: they own at least one personal asset such as a car, a house or other properties, they must have a good if not impressive credit history and they show proof that the business is earning at least $500 a week.
A lot of business owners resort instead to credit cards when financing loans for their business. Credit card loans are ideal for business owners who plan on taking out small loans as these loans can easily be repaid and may not be able to hugely jeopardise the business’ profits.
However, just like any other business loan, credit lines have interest rates and failing to pay on time might cause the business to accumulate both debt and penalties.