Understanding Your Small Business Loan Options

Understanding Your Small Business Loan Options

Running a small business requires careful attention to your cash position and capital needs. In many cases, it is helpful to understand the various loan options you have. This can include business lines of credit, term loans, SBA loans and more. When you understand how you can borrow, you can make better decisions for your business’s financial future.

Unsecured Business Loans

For many businesses, taking out unsecured loans is the most desirable way to borrow. Although lenders can still seize collateral from you, these loans are not backed by specific assets (this contrasts against a home mortgage, for example). Therefore, they are relatively flexible for small businesses.

You can find working capital loans, short-term loans, alternative loans, microloans and many other business loan options. To qualify for one of these, you will likely need to show that your business is earning money.

Financing Options

There are a variety of structures of loans that you can borrow. They almost all fall into one of two major groups: term loans and lines of credit. A term loan will have a specific length in which you will repay the lent amount. Some of these are amortized (the payments are all the same) and others have a balloon structure (the final payment is larger).

A line of credit is a revolving credit account. Rather than borrow one lump sum, you can borrow against your credit limit whenever you like. This is a lot like a credit card. However, there is no need for a card to make payments. Instead, you just draw money into your account.

As a slightly different option, you can consider a merchant cash advance. This is similar to a term loan but is technically not a loan at all. Similarly, invoice factoring involves selling your invoices rather than borrowing money.

Industry-Specific Options

In some cases, you can get special loans for your specific industry. For example, you may take our health care financing or a franchise business loan. These are designed to meet the unique requirements of businesses in certain fields.

Similarly, some loans are intended for specific uses. You may take out an equipment loan or a real estate loan.

Learn More

The above overview will help you understand how various loans and lines of credit work. However, you will likely need more information. Discover more about specific business financing options by talking with a lender about the products available to you.


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