{"componentChunkName":"component---src-templates-articles-index-jsx","path":"/articles/how-to-choose-a-business-loan/","result":{"data":{"props":{"adsense":true,"adsenseMobile":null,"byLine":"","canonical":"https://staging.business.com/articles/how-to-choose-a-business-loan/","content":"\n<p>Having a good idea plays an important role in being a successful entrepreneur and small business owner, but it's not the only requirement. Unless you have the means to self-fund, the first step is to secure a loan. But do you know how to choose the best one for your needs and objectives?</p>\r\n<h2>The most common types of business loans</h2>\r\n<p>If you don't have any experience in the world of financing, then you probably don't realize that there are many different types of loans. In fact, there are enough different loan types and formats to make your head spin. Before we dig into some tips and tricks for evaluating and choosing the right loan, let's take a brief look at two of the most common types of loans, as well as the individual funding options within each category.</p>\r\n<h3>1. Small Business Administration loans<strong> </strong>\n</h3>\r\n<p>The Small Business Administration <a href=\"https://www.business.com/articles/applying-for-an-sba-loan-versus-alternative-online-lenders/\">(SBA) offers different types of loans</a> specifically designed for small business owners who meet certain requirements and qualifications. Here are the four major types:</p>\r\n<h4>7(a) Loan Program </h4>\r\n<p>By far the most basic and popular loan the SBA offers is the 7(a) loan program. These loans can be used for a variety of things, including working capital, to purchase real estate, acquire or expand and even to refinance existing debt.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Long repayment time (up to 10 years)</li>\r\n<li>No collateral requirements</li>\r\n<li>Lower-than-average interest rates</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Difficult qualification process</li>\r\n<li>Very specific documentation requirements</li>\r\n<li>Personal guarantee</li>\r\n</ul>\n<h4>Microloan program</h4>\r\n<p>For brand new or growing businesses, the SBA offers small loans in the form of microloans. These loans can be used for many of the same things a 7(a) loan can be used for; they just come in a smaller amount and shorter repayment terms. The average loan is $13,000, and the maximum repayment term is six years.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Very quick distribution (generally 30 days)</li>\r\n<li>Lends to businesses that traditional lenders won't work with</li>\r\n<li>Used on a variety of business costs (inventory, machinery, working capital, etc.)</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Two layers of bureaucracy (government and bank)</li>\r\n<li>Spending restrictions (can't buy real estate or pay off debt)</li>\r\n</ul>\n<h4>CDC/504 Loan Program </h4>\r\n<p>This loan program gives businesses a long-term fixed rate for major assets like real estate and equipment. The SBA generally provides 40% of the loan, while an approved lender covers as much as 50%. The borrower then has to put up the remaining percentage. The maximum 504 loan is $5.5 million, and details are negotiable to include 10- or 20-year maturity terms.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Affordable fixed interest rates</li>\r\n<li>Very large loan amounts</li>\r\n<li>Easy qualification process</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Strict usage restrictions</li>\r\n<li>Must be used to create jobs (one job per $65,000)</li>\r\n<li>Must be able to cover 10% of loan on your own</li>\r\n</ul>\n<h4>Disaster loans</h4>\r\n<p>Finally, there are SBA disaster loans. These loans – which max out at $2 million – can be used to purchase, repair or replace assets that were destroyed as part of a declared disaster.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Higher-than-average maximum loan amount (up to $2 million)</li>\r\n<li>Lenient terms (up to 30 years for repayment)</li>\r\n<li>Flexible usage of funds</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Very challenging qualification process</li>\r\n<li>Affordability depends on other financing options available</li>\r\n<li>Must be located in a disaster zone</li>\r\n</ul>\n<p> </p>\r\n<p><strong>Editor's note: Looking for a financing solution for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to get information from a variety of lenders for free:</strong></p>\r\n<div id=\"bz-form-widget-0\" class=\"bz-form-widget\" data-bz-category-id=\"10128\"> </div>\r\n<h3>2. Traditional loans</h3>\r\n<p>SBA loans are great … if you qualify. However, for people who don't meet the requirements or need something more flexible, traditional loans offer even more opportunities. Here are some different types of traditional loans.</p>\r\n<h4>Equipment loan financing</h4>\r\n<p>A lot of small businesses simply need a loan for equipment. With an equipment loan, you can purchase anything from tablets for your employees to new machinery in the warehouse and make monthly payments on the items, as opposed to having to fork over all of the cash at once.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Very flexible terms</li>\r\n<li>Fast funding</li>\r\n<li>No additional collateral (beyond equipment)</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Restricted to equipment</li>\r\n<li>Requires equipment purchasing (no leasing)</li>\r\n<li>Higher-than-average interest rates</li>\r\n</ul>\n<h4>Line of credit</h4>\r\n<p>If your business is more unpredictable and you need cash some months but not other months, a line of credit is perfect. It just sits there until you need it, and you only have to take out the amount that you need.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Only pay for what you use</li>\r\n<li>Helps balance cash flow during slower periods</li>\r\n<li>Encourages flexibility</li>\r\n<li>Helps companies boost business credit score</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Strict qualification requirements</li>\r\n<li>Lots of additional fees and charges</li>\r\n<li>Limited borrowing power</li>\r\n</ul>\n<h4>Working capital loan</h4>\r\n<p>For lots of small businesses, the cyclical nature of revenue means there are some months when there isn't enough money to keep the lights on. A working capital loan is a short-term solution that enables you to temporarily infuse cash into your business while you find ways to bring in more revenue.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Always have cash on hand</li>\r\n<li>Few (if any) spending restrictions</li>\r\n<li>No need to put up collateral (if the business has good credit)</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Higher-than-average interest rates</li>\r\n<li>Fast repayment requirements</li>\r\n</ul>\n<h4>Merchant cash advance</h4>\r\n<p>If you run a small business where you get lots of credit card transactions, a <a href=\"https://www.business.com/articles/merchant-cash-advance-working-capital-loan/\">merchant cash advance</a> can help keep money flowing. This type of loan is based on the volume of your monthly transactions and gives you an advance of up to 125% of your anticipated volume. You then steadily repay it over the next month with specific terms.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Easy to qualify for</li>\r\n<li>Fast funding</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Lots of contingencies</li>\r\n<li>Higher-than-average fees</li>\r\n</ul>\n<h4>Invoice factoring</h4>\r\n<p>Invoice factoring is a unique way of increasing cash within your business by leveraging money that's already owed to your business. It works like this: You sell any outstanding invoices you have to a factoring company in return for a lump sum (usually 70 to 90% of the total amount). You're then able to use this cash as you see fit.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Immediate cash</li>\r\n<li>No collateral</li>\r\n<li>Flexible use of funds</li>\r\n<li>Easy approval</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Expensive (reduces profits by 10 to 30%)</li>\r\n<li>Liability (can be responsible for unpaid invoices)</li>\r\n</ul>\n<h4>Business credit cards</h4>\r\n<p>In some cases, a simple business credit card can be used like a line of credit to fund business purchases. However, much like personal credit cards, business credit must be used with extreme caution and discipline; otherwise, costs get out of hand.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Easy and simple qualification</li>\r\n<li>Rewards and perks for using credit card</li>\r\n<li>Only pay for what you use</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Very high interest rates</li>\r\n<li>Minimal purchasing protection</li>\r\n<li>Possibility of security/fraud issues</li>\r\n</ul>\n<h4>Secured loans</h4>\r\n<p>A secured business loan is very much a traditional loan in the sense that it's backed by an asset, such as a building, land or equipment. If you're unable to make payments, the collateral can be seized by the lender to offset the money owed.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Low interest rates</li>\r\n<li>Easy to obtain</li>\r\n<li>Generous repayment terms (as much as 20 or 30 years)</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Risk of losing the asset</li>\r\n<li>Requires a certain type of asset for approval</li>\r\n<li>Only for established businesses (not ideal for startups)</li>\r\n</ul>\n<h4>Unsecured loans</h4>\r\n<p>An <a href=\"https://www.business.com/articles/business-loans-50-000-to-100-000/\">unsecured loan</a> is the opposite of a secured loan in the sense that no collateral is required. This poses less risk for the business, but it also means you offset the risk in other ways – such as higher interest rates.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>No risk of losing your property<strong></strong>\n</li>\r\n<li>Shorter-than-average loan application process<strong></strong>\n</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Meticulous qualification process</li>\r\n<li>Higher interest rates</li>\r\n<li>Lower loan amounts</li>\r\n</ul>\n<h4>Term loans</h4>\r\n<p>A term loan is a very basic type of loan that operates much in the same way as a student loan or home mortgage. The business borrows a lump sum upfront and is then required to repay it in weekly or monthly installments over a predetermined period of time.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Quick processing</li>\r\n<li>Lower interest rates</li>\r\n<li>High loan limits</li>\r\n<li>Simple budgeting</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Personal guarantee required (in most cases)</li>\r\n<li>High credit score needed</li>\r\n<li>Demonstrated profitability preferred</li>\r\n<li>Financing fees</li>\r\n</ul>\n<h4>Personal loans</h4>\r\n<p>While it's not always the first option business owners pursue, personal loans can be used for business purchases and expenses (so long as the lender doesn't have restrictions that state otherwise). Personal loans are considered unsecured debt and are widely used for a variety of purposes.</p>\r\n<p><strong>Pros</strong></p>\r\n<ul>\n<li>Extremely versatile</li>\r\n<li>Decent interest rates</li>\r\n<li>Lots of options for lenders (including peer-to-peer online lenders)</li>\r\n</ul>\n<p><strong>Cons</strong></p>\r\n<ul>\n<li>Origination fees</li>\r\n<li>Penalties for paying off early (in some cases)</li>\r\n<li>Restrictions for business use </li>\r\n</ul>\n<h2>4 tips for evaluating and choosing the right loan</h2>\r\n<p>Is your head spinning yet? Those were just a few examples of small business loans – many more exist. Here are some recommendations for choosing the right loan for your situation.</p>\r\n<h3>1. Become more self-aware.</h3>\r\n<p>Before you do anything else, spend time evaluating your business and how lenders see you. A quick credit check will help you understand your score, which is one factor involved, but you also need to know your debt-to-equity ratio.</p>\r\n<p>According to business consultant David Duryee, this is one of the most important metrics a lender analyzes. \"It is a basic financial principle that the more you rely on debt versus equity to finance your business, the more risk you face,\" he <a href=\"http://www.evancarmichael.com/library/joseph-lizio/Business-Loan-The-Debt-to-Equity-Ratio.html\" target=\"_blank\">explains</a>. \"Therefore, the higher the debt-to-equity ratio, the less safe your business [is].\"</p>\r\n<h3>2. Consider the interest rate.</h3>\r\n<p>You obviously want to consider the interest rate, though this shouldn't be the only determining factor. For example, if a $100,000 loan has repayment terms of five years, a difference of two percentage points really doesn't matter that much in the grand scheme of things. It would, however, matter if the loan were for $1 million spread out over 20 years. Be smart about comparing interest rates, and give more weight to it when terms are higher.</p>\r\n<h3>3. Look at repayment terms.</h3>\r\n<p>Speaking of <a href=\"https://www.business.com/articles/hidden-loan-repayment-terms/\">repayment terms</a>, what is the length of time? What does the payment schedule look like? Can you pay off the loan early, or do you have to wait until maturation? It's easy for these to seem like small little details in the fine print of a loan, but they can save or cost you tens of thousands of dollars when it's all said and done.</p>\r\n<h3>4. Consider application fees.</h3>\r\n<p>Are you aware that some lenders actually require you to pay in order to submit an application, while others don't?</p>\r\n<p>\"It is important to ask what types of fees are associated with the application,\" <a href=\"http://www.businessnewsdaily.com/7695-small-business-loan-guide.html\">Business News Daily advises</a>. \"Some lenders charge an application fee, while others charge fees for items tied into the application, such as the cost to run your credit report or get your collateral appraised.\"</p>\r\n<h2>Take your time</h2>\r\n<p>You may feel like you have time against you, but it's OK to slow down a bit. The absolute worst thing you can do is rush into this. Prematurely selecting a loan, only to figure out a month from now that you chose the wrong one, can be devastating to your business. Be patient and carefully evaluate all of your options before proceeding too far in the process.</p>\r\n<p><em>Related Articles For Business Loans:</em>  <a href=\"https://www.business.com/articles/how-to-choose-a-business-loan/\">How to Choose the Best Business Loan</a></p>\r\n<p><picture class=\"alignleft thumb\"><source srcset=\"/images/content/5af/4720392a3a453198b456f/300_-185- 300w, /images/content/5af/4720392a3a453198b456f/150_-92- 150w, /images/content/5af/4720392a3a453198b456f/75_-46- 75w\" sizes=\"(min-width: 870px) 150px, (min-width: 400px) 38vw, 38%\"></source><img src=\"/images/content/5af/4720392a3a453198b456f/1430-883-\" alt=\"Best Business Loan Comparison Guide\" width=\"1430\" height=\"883\" data-content-img-id=\"5af4720392a3a453198b456f\"></picture></p>\r\n<p><a href=\"https://www.business.com/categories/small-business-loans-and-financing-options/\" rel=\"noopener external\">Best Business Loan Comparison Guide</a> - Business.com</p>\r\n<p>Looking for the best small business loan service? We have expert reviews and feature comparisons of the top business loan providers.</p>\r\n<p> </p>\r\n<p><picture class=\"alignleft thumb\"><source srcset=\"/images/content/5af/467e01039eb0f278b456e/300_-200- 300w, /images/content/5af/467e01039eb0f278b456e/150_-100- 150w, /images/content/5af/467e01039eb0f278b456e/75_-50- 75w\" sizes=\"(min-width: 870px) 150px, (min-width: 400px) 38vw, 38%\"></source><img src=\"/images/content/5af/467e01039eb0f278b456e/280-187-\" alt=\"\" width=\"280\" height=\"187\" data-content-img-id=\"5af467e01039eb0f278b456e\"></picture></p>\r\n<p><a href=\"https://www.business.com/articles/government-loans-for-entrepreneurs/\" rel=\"noopener external\">What Government Loans are Available to Entrepreneurs?</a> - Business.com</p>\r\n<p>Several loan programs are available to startups and growing businesses, as we found when we went looking for an answer to Business.com user Jenny Simon's question.</p>\r\n<p> </p>\r\n<p><a href=\"https://www.business.com/articles/how-to-start-a-business-without-loan/\" rel=\"noopener external\">How to Start a Business Without a Loan?</a> - Business.com<picture class=\"alignleft thumb\"><source srcset=\"/images/content/5af/46b3951ee471c518b4589/300_-300- 300w, /images/content/5af/46b3951ee471c518b4589/150_-150- 150w, /images/content/5af/46b3951ee471c518b4589/75_-75- 75w\" sizes=\"(min-width: 870px) 150px, (min-width: 400px) 38vw, 38%\"></source><img src=\"/images/content/5af/46b3951ee471c518b4589/280-280-\" alt=\"\" width=\"280\" height=\"280\" data-content-img-id=\"5af46b3951ee471c518b4589\"></picture></p>\r\n<p>Debt isn't the only way! Here are alternatives to getting a loan in order to start your business.</p>\r\n<p> </p>\r\n<p> </p>\r\n<p> </p>\r\n<p> </p>\n","docType":"article","guid":"articles_7d8accf117a6a367a6358149645a9e64","lastModified":"2020-02-04T14:25:00.000Z","published":"2020-02-04T14:25:00.000Z","structuredData":null,"subtitle":"Small businesses have a lot of funding options, but choose wisely.","template":"v1","title":"How to Choose the Best Business Loan","type":"article","author":{"avatar":null,"bio":"Larry Alton is a professional blogger, writer and researcher who contributes to a number of reputable online media outlets and news sources. A graduate of Des Moines University, he still lives in Iowa as a full-time freelance writer and avid news hound. Currently, Larry writes for Inquisitr.com, SocialMediaWeek.org, Tech.co, and SiteProNews.com among others. In addition to journalism, technical writing and in-depth research, he’s also active in his community and spends weekends volunteering with a local non-profit literacy organization and rock climbing.\r\n \r\nHe pursued his undergraduate degree in English Literature and transitioned to freelance writing full-time upon graduation. The years he spent studying and working the corporate daily grind prepared him well for his work with AGBeat.com, Entrepreneur.com, Mediapost.com and Americanthinker.com. A featured writer with Desk.com, WishPon.com and Experts.AllBusiness.com, he’s positioned himself at the top of the tech writing field and is known for “translating” industry jargon into easily digestible, readable content.\r\n \r\nParticularly interesting fields for Larry include digital media, thought leadership, any and all things Android and iOS, entrepreneurship and social media. Connect with Larry on Google+ or in the comments section on any of the sites where he’s featured.","name":"Larry Alton","image":null,"slug":null,"social":{"facebook":"","linkedin":"https://www.linkedin.com/profile/view?id=274098745&auth","twitter":"larryalton3","website":""},"status":"enabled","title":null,"type":"Old BDC Member","user":{"imagePath":"https://staging.business.com/images/uploads/user/profile/6450b6fd97501d84a999072d66d61305d662a.jpg","profile":{"company":"","jobTitle":"","website":""}}},"breadcrumbs":null,"channels":{"primary":{"name":"Finance","slug":"finance"},"sub":{"name":"Funding","slug":"funding"}},"meta":{"robots":"index, follow","description":"Read our tips for choosing the best loan to fund your business.","title":"Which Type of Business Loan Is Best for Your Business? - business.com"},"parsedContent":{"toc":[{"id":"the-most-common-types-of-business-loans","title":"The most common types of business loans"},{"id":"4-tips-for-evaluating-and-choosing-the-right-loan","title":"4 tips for evaluating and choosing the right loan"},{"id":"take-your-time","title":"Take your time"}],"json":[{"component":"p","children":["Having a good idea plays an important role in being a successful entrepreneur and small business owner, but it's not the only requirement. Unless you have the means to self-fund, the first step is to secure a loan. But do you know how to choose the best one for your needs and objectives?"]},{"component":"h2","props":{"id":"the-most-common-types-of-business-loans"},"children":["The most common types of business loans"]},{"component":"p","children":["If you don't have any experience in the world of financing, then you probably don't realize that there are many different types of loans. In fact, there are enough different loan types and formats to make your head spin. Before we dig into some tips and tricks for evaluating and choosing the right loan, let's take a brief look at two of the most common types of loans, as well as the individual funding options within each category."]},{"component":"h3","children":["1. Small Business Administration loans",{"component":"strong","children":[" "]}]},{"component":"p","children":["The Small Business Administration ",{"component":"Link","props":{"href":"https://www.business.com/articles/applying-for-an-sba-loan-versus-alternative-online-lenders/"},"children":["(SBA) offers different types of loans"]}," specifically designed for small business owners who meet certain requirements and qualifications. Here are the four major types:"]},{"component":"h4","children":["7(a) Loan Program "]},{"component":"p","children":["By far the most basic and popular loan the SBA offers is the 7(a) loan program. These loans can be used for a variety of things, including working capital, to purchase real estate, acquire or expand and even to refinance existing debt."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Long repayment time (up to 10 years)"]},{"component":"li","children":["No collateral requirements"]},{"component":"li","children":["Lower-than-average interest rates"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Difficult qualification process"]},{"component":"li","children":["Very specific documentation requirements"]},{"component":"li","children":["Personal guarantee"]}]},{"component":"h4","children":["Microloan program"]},{"component":"p","children":["For brand new or growing businesses, the SBA offers small loans in the form of microloans. These loans can be used for many of the same things a 7(a) loan can be used for; they just come in a smaller amount and shorter repayment terms. The average loan is $13,000, and the maximum repayment term is six years."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Very quick distribution (generally 30 days)"]},{"component":"li","children":["Lends to businesses that traditional lenders won't work with"]},{"component":"li","children":["Used on a variety of business costs (inventory, machinery, working capital, etc.)"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Two layers of bureaucracy (government and bank)"]},{"component":"li","children":["Spending restrictions (can't buy real estate or pay off debt)"]}]},{"component":"h4","children":["CDC/504 Loan Program "]},{"component":"p","children":["This loan program gives businesses a long-term fixed rate for major assets like real estate and equipment. The SBA generally provides 40% of the loan, while an approved lender covers as much as 50%. The borrower then has to put up the remaining percentage. The maximum 504 loan is $5.5 million, and details are negotiable to include 10- or 20-year maturity terms."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Affordable fixed interest rates"]},{"component":"li","children":["Very large loan amounts"]},{"component":"li","children":["Easy qualification process"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Strict usage restrictions"]},{"component":"li","children":["Must be used to create jobs (one job per $65,000)"]},{"component":"li","children":["Must be able to cover 10% of loan on your own"]}]},{"component":"h4","children":["Disaster loans"]},{"component":"p","children":["Finally, there are SBA disaster loans. These loans – which max out at $2 million – can be used to purchase, repair or replace assets that were destroyed as part of a declared disaster."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Higher-than-average maximum loan amount (up to $2 million)"]},{"component":"li","children":["Lenient terms (up to 30 years for repayment)"]},{"component":"li","children":["Flexible usage of funds"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Very challenging qualification process"]},{"component":"li","children":["Affordability depends on other financing options available"]},{"component":"li","children":["Must be located in a disaster zone"]}]},{"component":"p","children":[" "]},{"component":"p","children":[{"component":"strong","children":["Editor's note: Looking for a financing solution for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to get information from a variety of lenders for free:"]}]},{"component":"RfqWidget","props":{"className":"bz-form-widget","id":"bz-form-widget-0","widgetCategoryId":"10128"},"children":[" "]},{"component":"h3","children":["2. Traditional loans"]},{"component":"p","children":["SBA loans are great … if you qualify. However, for people who don't meet the requirements or need something more flexible, traditional loans offer even more opportunities. Here are some different types of traditional loans."]},{"component":"h4","children":["Equipment loan financing"]},{"component":"p","children":["A lot of small businesses simply need a loan for equipment. With an equipment loan, you can purchase anything from tablets for your employees to new machinery in the warehouse and make monthly payments on the items, as opposed to having to fork over all of the cash at once."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Very flexible terms"]},{"component":"li","children":["Fast funding"]},{"component":"li","children":["No additional collateral (beyond equipment)"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Restricted to equipment"]},{"component":"li","children":["Requires equipment purchasing (no leasing)"]},{"component":"li","children":["Higher-than-average interest rates"]}]},{"component":"h4","children":["Line of credit"]},{"component":"p","children":["If your business is more unpredictable and you need cash some months but not other months, a line of credit is perfect. It just sits there until you need it, and you only have to take out the amount that you need."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Only pay for what you use"]},{"component":"li","children":["Helps balance cash flow during slower periods"]},{"component":"li","children":["Encourages flexibility"]},{"component":"li","children":["Helps companies boost business credit score"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Strict qualification requirements"]},{"component":"li","children":["Lots of additional fees and charges"]},{"component":"li","children":["Limited borrowing power"]}]},{"component":"h4","children":["Working capital loan"]},{"component":"p","children":["For lots of small businesses, the cyclical nature of revenue means there are some months when there isn't enough money to keep the lights on. A working capital loan is a short-term solution that enables you to temporarily infuse cash into your business while you find ways to bring in more revenue."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Always have cash on hand"]},{"component":"li","children":["Few (if any) spending restrictions"]},{"component":"li","children":["No need to put up collateral (if the business has good credit)"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Higher-than-average interest rates"]},{"component":"li","children":["Fast repayment requirements"]}]},{"component":"h4","children":["Merchant cash advance"]},{"component":"p","children":["If you run a small business where you get lots of credit card transactions, a ",{"component":"Link","props":{"href":"https://www.business.com/articles/merchant-cash-advance-working-capital-loan/"},"children":["merchant cash advance"]}," can help keep money flowing. This type of loan is based on the volume of your monthly transactions and gives you an advance of up to 125% of your anticipated volume. You then steadily repay it over the next month with specific terms."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Easy to qualify for"]},{"component":"li","children":["Fast funding"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Lots of contingencies"]},{"component":"li","children":["Higher-than-average fees"]}]},{"component":"h4","children":["Invoice factoring"]},{"component":"p","children":["Invoice factoring is a unique way of increasing cash within your business by leveraging money that's already owed to your business. It works like this: You sell any outstanding invoices you have to a factoring company in return for a lump sum (usually 70 to 90% of the total amount). You're then able to use this cash as you see fit."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Immediate cash"]},{"component":"li","children":["No collateral"]},{"component":"li","children":["Flexible use of funds"]},{"component":"li","children":["Easy approval"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Expensive (reduces profits by 10 to 30%)"]},{"component":"li","children":["Liability (can be responsible for unpaid invoices)"]}]},{"component":"h4","children":["Business credit cards"]},{"component":"p","children":["In some cases, a simple business credit card can be used like a line of credit to fund business purchases. However, much like personal credit cards, business credit must be used with extreme caution and discipline; otherwise, costs get out of hand."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Easy and simple qualification"]},{"component":"li","children":["Rewards and perks for using credit card"]},{"component":"li","children":["Only pay for what you use"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Very high interest rates"]},{"component":"li","children":["Minimal purchasing protection"]},{"component":"li","children":["Possibility of security/fraud issues"]}]},{"component":"h4","children":["Secured loans"]},{"component":"p","children":["A secured business loan is very much a traditional loan in the sense that it's backed by an asset, such as a building, land or equipment. If you're unable to make payments, the collateral can be seized by the lender to offset the money owed."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Low interest rates"]},{"component":"li","children":["Easy to obtain"]},{"component":"li","children":["Generous repayment terms (as much as 20 or 30 years)"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Risk of losing the asset"]},{"component":"li","children":["Requires a certain type of asset for approval"]},{"component":"li","children":["Only for established businesses (not ideal for startups)"]}]},{"component":"h4","children":["Unsecured loans"]},{"component":"p","children":["An ",{"component":"Link","props":{"href":"https://www.business.com/articles/business-loans-50-000-to-100-000/"},"children":["unsecured loan"]}," is the opposite of a secured loan in the sense that no collateral is required. This poses less risk for the business, but it also means you offset the risk in other ways – such as higher interest rates."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["No risk of losing your property",{"component":"strong"}]},{"component":"li","children":["Shorter-than-average loan application process",{"component":"strong"}]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Meticulous qualification process"]},{"component":"li","children":["Higher interest rates"]},{"component":"li","children":["Lower loan amounts"]}]},{"component":"h4","children":["Term loans"]},{"component":"p","children":["A term loan is a very basic type of loan that operates much in the same way as a student loan or home mortgage. The business borrows a lump sum upfront and is then required to repay it in weekly or monthly installments over a predetermined period of time."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Quick processing"]},{"component":"li","children":["Lower interest rates"]},{"component":"li","children":["High loan limits"]},{"component":"li","children":["Simple budgeting"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Personal guarantee required (in most cases)"]},{"component":"li","children":["High credit score needed"]},{"component":"li","children":["Demonstrated profitability preferred"]},{"component":"li","children":["Financing fees"]}]},{"component":"h4","children":["Personal loans"]},{"component":"p","children":["While it's not always the first option business owners pursue, personal loans can be used for business purchases and expenses (so long as the lender doesn't have restrictions that state otherwise). Personal loans are considered unsecured debt and are widely used for a variety of purposes."]},{"component":"p","children":[{"component":"strong","children":["Pros"]}]},{"component":"ul","children":[{"component":"li","children":["Extremely versatile"]},{"component":"li","children":["Decent interest rates"]},{"component":"li","children":["Lots of options for lenders (including peer-to-peer online lenders)"]}]},{"component":"p","children":[{"component":"strong","children":["Cons"]}]},{"component":"ul","children":[{"component":"li","children":["Origination fees"]},{"component":"li","children":["Penalties for paying off early (in some cases)"]},{"component":"li","children":["Restrictions for business use "]}]},{"component":"h2","props":{"id":"4-tips-for-evaluating-and-choosing-the-right-loan"},"children":["4 tips for evaluating and choosing the right loan"]},{"component":"p","children":["Is your head spinning yet? Those were just a few examples of small business loans – many more exist. Here are some recommendations for choosing the right loan for your situation."]},{"component":"h3","children":["1. Become more self-aware."]},{"component":"p","children":["Before you do anything else, spend time evaluating your business and how lenders see you. A quick credit check will help you understand your score, which is one factor involved, but you also need to know your debt-to-equity ratio."]},{"component":"p","children":["According to business consultant David Duryee, this is one of the most important metrics a lender analyzes. \"It is a basic financial principle that the more you rely on debt versus equity to finance your business, the more risk you face,\" he ",{"component":"a","props":{"href":"http://www.evancarmichael.com/library/joseph-lizio/Business-Loan-The-Debt-to-Equity-Ratio.html","target":"_blank","rel":"nofollow"},"children":["explains"]},". \"Therefore, the higher the debt-to-equity ratio, the less safe your business [is].\""]},{"component":"h3","children":["2. Consider the interest rate."]},{"component":"p","children":["You obviously want to consider the interest rate, though this shouldn't be the only determining factor. For example, if a $100,000 loan has repayment terms of five years, a difference of two percentage points really doesn't matter that much in the grand scheme of things. It would, however, matter if the loan were for $1 million spread out over 20 years. Be smart about comparing interest rates, and give more weight to it when terms are higher."]},{"component":"h3","children":["3. Look at repayment terms."]},{"component":"p","children":["Speaking of ",{"component":"Link","props":{"href":"https://www.business.com/articles/hidden-loan-repayment-terms/"},"children":["repayment terms"]},", what is the length of time? What does the payment schedule look like? Can you pay off the loan early, or do you have to wait until maturation? It's easy for these to seem like small little details in the fine print of a loan, but they can save or cost you tens of thousands of dollars when it's all said and done."]},{"component":"h3","children":["4. Consider application fees."]},{"component":"p","children":["Are you aware that some lenders actually require you to pay in order to submit an application, while others don't?"]},{"component":"p","children":["\"It is important to ask what types of fees are associated with the application,\" ",{"component":"a","props":{"href":"http://www.businessnewsdaily.com/7695-small-business-loan-guide.html","rel":"nofollow"},"children":["Business News Daily advises"]},". \"Some lenders charge an application fee, while others charge fees for items tied into the application, such as the cost to run your credit report or get your collateral appraised.\""]},{"component":"h2","props":{"id":"take-your-time"},"children":["Take your time"]},{"component":"p","children":["You may feel like you have time against you, but it's OK to slow down a bit. The absolute worst thing you can do is rush into this. Prematurely selecting a loan, only to figure out a month from now that you chose the wrong one, can be devastating to your business. Be patient and carefully evaluate all of your options before proceeding too far in the process."]},{"component":"p","children":[{"component":"em","children":["Related Articles For Business Loans:"]},"  ",{"component":"Link","props":{"href":"https://www.business.com/articles/how-to-choose-a-business-loan/"},"children":["How to Choose the Best Business Loan"]}]},{"component":"p","children":[{"component":"picture","props":{"className":"alignleft thumb"},"children":[{"component":"source","props":{"srcSet":"/images/content/5af/4720392a3a453198b456f/300_-185- 300w, /images/content/5af/4720392a3a453198b456f/150_-92- 150w, /images/content/5af/4720392a3a453198b456f/75_-46- 75w","sizes":"(min-width: 870px) 150px, (min-width: 400px) 38vw, 38%"}},{"component":"img","props":{"src":"/images/content/5af/4720392a3a453198b456f/1430-883-","alt":"Best Business Loan Comparison Guide","width":"1430","height":"883","data-content-img-id":"5af4720392a3a453198b456f"}}]}]},{"component":"p","children":[{"component":"Link","props":{"href":"https://www.business.com/categories/small-business-loans-and-financing-options/","rel":"noopener external"},"children":["Best Business Loan Comparison Guide"]}," - Business.com"]},{"component":"p","children":["Looking for the best small business loan service? We have expert reviews and feature comparisons of the top business loan providers."]},{"component":"p","children":[" "]},{"component":"p","children":[{"component":"picture","props":{"className":"alignleft thumb"},"children":[{"component":"source","props":{"srcSet":"/images/content/5af/467e01039eb0f278b456e/300_-200- 300w, /images/content/5af/467e01039eb0f278b456e/150_-100- 150w, /images/content/5af/467e01039eb0f278b456e/75_-50- 75w","sizes":"(min-width: 870px) 150px, (min-width: 400px) 38vw, 38%"}},{"component":"img","props":{"src":"/images/content/5af/467e01039eb0f278b456e/280-187-","alt":"","width":"280","height":"187","data-content-img-id":"5af467e01039eb0f278b456e"}}]}]},{"component":"p","children":[{"component":"Link","props":{"href":"https://www.business.com/articles/government-loans-for-entrepreneurs/","rel":"noopener external"},"children":["What Government Loans are Available to Entrepreneurs?"]}," - Business.com"]},{"component":"p","children":["Several loan programs are available to startups and growing businesses, as we found when we went looking for an answer to Business.com user Jenny Simon's question."]},{"component":"p","children":[" "]},{"component":"p","children":[{"component":"Link","props":{"href":"https://www.business.com/articles/how-to-start-a-business-without-loan/","rel":"noopener external"},"children":["How to Start a Business Without a Loan?"]}," - Business.com",{"component":"picture","props":{"className":"alignleft thumb"},"children":[{"component":"source","props":{"srcSet":"/images/content/5af/46b3951ee471c518b4589/300_-300- 300w, /images/content/5af/46b3951ee471c518b4589/150_-150- 150w, /images/content/5af/46b3951ee471c518b4589/75_-75- 75w","sizes":"(min-width: 870px) 150px, (min-width: 400px) 38vw, 38%"}},{"component":"img","props":{"src":"/images/content/5af/46b3951ee471c518b4589/280-280-","alt":"","width":"280","height":"280","data-content-img-id":"5af46b3951ee471c518b4589"}}]}]},{"component":"p","children":["Debt isn't the only way! Here are alternatives to getting a loan in order to start your business."]},{"component":"p","children":[" "]},{"component":"p","children":[" "]},{"component":"p","children":[" "]},{"component":"p","children":[" "]}]},"resource":null,"sponsorship":{"sponsorType":"","name":null,"thumbnail":null,"bio":null,"slug":null,"status":null,"social":{"website":null,"linkedin":null,"twitter":null,"facebook":null}},"thumbnail":{"path":"https://staging.business.com/images/content/5db/c5c175a215e47798b456f/1500-0-","caption":"dusanpetkovic / Getty Images","isBlurred":false},"bestPicks":null},"related":{"relatedArticles":[{"title":"What It Means to Default on a Business Loan, and What to Do Next","canonical":"https://www.business.com/articles/small-business-loan-default/","slug":"small-business-loan-default","thumbnail":"https://www.business.com/images/content/5d1/27f949c658ac5668b456f/1500-0-","dek":"Learn what it means to default on a loan and why you should be upfront with your lender about it.","lastModified":"2020-02-03T16:00:00Z","published":"2018-07-02T19:00:00Z","sponsored":false},{"title":"Bank of America Executive on What It Takes to Get a Business Loan","canonical":"https://www.business.com/articles/bank-of-america-bank-loan-tips/","slug":"bank-of-america-bank-loan-tips","thumbnail":"https://www.business.com/images/content/5b2/27dcd51ee475a328b4580/1500-0-","dek":"The head of small business lending highlights the advantages of getting a bank loan.","lastModified":"2018-06-14T15:00:00Z","published":"2018-06-14T15:00:00Z","sponsored":false},{"title":"Resources for Veteran-Owned Businesses","canonical":"https://www.business.com/articles/resources-veteran-owned-business/","slug":"resources-veteran-owned-business","thumbnail":"https://www.business.com/images/content/5b7/425da51ee47e7568b458a/1500-0-","dek":"How to start a business, find funding and gain customers as a veteran business owner.","lastModified":"2018-08-15T12:01:00Z","published":"2018-08-15T12:01:00Z","sponsored":false},{"title":"What SMBs Need to Know When Choosing a Small Business Loan","canonical":"https://www.business.com/articles/choosing-a-small-business-loan/","slug":"choosing-a-small-business-loan","thumbnail":"https://www.business.com/images/content/5b0/459ae92a3a459378b4575/1500-0-","dek":"Here's everything you need to know about acquiring a loan for your small business.","lastModified":"2018-05-22T18:00:00Z","published":"2018-05-22T18:00:00Z","sponsored":false},{"title":"American Express' Gina Taylor Cotter On Figuring Out Which Business Loan Is Right For You","canonical":"https://www.business.com/articles/american-express-small-business-lending/","slug":"american-express-small-business-lending","thumbnail":"https://www.business.com/images/content/5a1/463d292a3a40f3e8b45a7/1500-0-","dek":"The Amex head of global commercial financing shares some insights for SMBs.","lastModified":"2017-11-21T08:00:00Z","published":"2017-11-21T08:00:00Z","sponsored":false},{"title":"Small Business Loans for Startups and New Businesses From $50,000 to $100,000","canonical":"https://www.business.com/articles/business-loans-50-000-to-100-000/","slug":"business-loans-50-000-to-100-000","thumbnail":"https://www.business.com/images/content/5d0/1b1559c658a2c0c8b4587/1500-0-","dek":"Small, short-term loans are ideal for startups and small businesses that need some capital but don't want to be saddled with a lot of debt.","lastModified":"2020-02-18T13:34:00Z","published":"2018-05-28T15:23:00Z","sponsored":false},{"title":"How to Make Money in Retirement: A Guide to Turning a Hobby into a Side Business","canonical":"https://www.business.com/articles/how-make-money-retirement-hobby/","slug":"how-make-money-retirement-hobby","thumbnail":"https://www.business.com/images/content/5ba/902e01039eb26648b4572/1500-0-","dek":"Many retirees turn side interests into income. Learn how to make money in retirement.","lastModified":"2018-09-24T15:03:00Z","published":"2018-09-24T15:03:00Z","sponsored":false},{"title":"How to Hire for Your Business","canonical":"https://www.business.com/articles/how-to-staff-business/","slug":"how-to-staff-business","thumbnail":"https://www.business.com/images/content/5ea/9c8bb9c658aee018b456c/1500-0-","dek":"Sterling Staffing Solutions CEO Stephen Carter shares his tips on staffing your business.","lastModified":"2020-07-31T15:00:00Z","published":"2018-08-16T12:00:00Z","sponsored":false},{"title":"Tips on Getting a Business Loan If You Have Bad Credit","canonical":"https://www.business.com/articles/how-to-get-a-business-loan-with-bad-credit/","slug":"how-to-get-a-business-loan-with-bad-credit","thumbnail":"https://www.business.com/images/content/5eb/5a1197b4374225f8b457e/1500-0-","dek":"Don't let bad credit hold you back from obtaining funding for your business.","lastModified":"2020-05-12T08:58:00Z","published":"2018-10-25T07:00:00Z","sponsored":false},{"title":"From COVID-19 to Hurricane Season: Disaster Preparedness for Small Business","canonical":"https://www.business.com/articles/business-disaster-prep/","slug":"business-disaster-prep","thumbnail":"https://www.business.com/images/content/5e7/a495e5a215eb11d8b4569/1500-0-","dek":"Natural disasters – whether a hurricane, tornado or outbreak like COVID-19 – can have a disastrous effect on small businesses, but they don't have to. Here's how to weather a disaster successfully.","lastModified":"2020-03-25T15:19:00Z","published":"2018-09-26T07:00:00Z","sponsored":false},{"title":"The Biggest Business Financing Myths Out There","canonical":"https://www.business.com/articles/small-business-loan-myths/","slug":"small-business-loan-myths","thumbnail":"https://www.business.com/images/content/5c0/005877b43740b578b456a/1500-0-","dek":"Don't believe these common myths about business loans.","lastModified":"2018-11-29T12:30:00Z","published":"2018-11-29T12:30:00Z","sponsored":false},{"title":"Your Guide to Creating a Small Business Marketing Plan","canonical":"https://www.business.com/articles/sample-marketing-plan-outline-and-template/","slug":"sample-marketing-plan-outline-and-template","thumbnail":"https://www.business.com/images/content/5f3/3e1765a215eb62d8b4567/1500-0-","dek":"Follow these templates and guidelines to get started on creating your business's marketing plan.","lastModified":"2020-08-12T12:28:00Z","published":"2018-03-02T13:00:00Z","sponsored":false}],"relatedReviews":[{"doc_type":"category","thumbnail":"https://staging.business.com/images/rz/5e46e2fc5a215eab4d8b457c/taxes_pano_Prostock-Studio_getty.jpg","canonical":"https://staging.business.com/categories/best-tax-debt-relief-services/","title":"The Best Tax Debt Relief Services of 2021","dek":"Looking for the best tax debt relief service? 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