Types of Small Business Loans

According to a recent study, small businesses are less likely to seek any form small business loans from financial institutions.  There are varying reasons for this which includes the fact that most small businesses lack the necessary documentation and necessary banking and credit history that these financial institutions require.  Still others find that acquiring small business loans will have a forced outcome (in terms of profit/sales) rather than having it grow naturally.  Nonetheless, a small business loan, when managed well, opens a lot of possibilities and opportunities.  And there are different sources of funding depending on your need and how much risk you are willing to take as an entrepreneur.  Remember that Apple Inc. started in a small garage in California. Here are types of small business loans for specific needs.

·         Government Financial Assistance – These government loans are industry specific and you may only apply if your business or products is one of the Government’s top priorities. The application is time consuming and approval is not guaranteed.  Only a few small business take this option

·         Credit Cards – The easiest way to obtain cash or small equipment to fund small business needs.  This is usually short term and incurs high interest rates especially if payments are kept at minimum level.  There are quite a number of small businesses resorts to credit card because of its convenience.   And credit card companies reward their user with higher credit limit the more often they use the card.

·         Secured Bank Loans – Loans with appropriate collateral usually in the form of chattel or property.  This type of loan requires a lot of documentation and may not be appropriate especially if the collateral’s value is much higher than the required funds.

·         Unsecured Loans – These are personal loans that are secured by checks or projected future profits.  This type of small business loan requires top credit score and extensive banking history.

·         Merchant Cash Advance - This type of small business loan is does not require extensive documentation and approval is based on projected credit card or debit card sales. Payment is done by assigning a certain percentage of the sales to the financing company.  Payment is made directly through the EPTPOS system where it is automatically deducted and sent to the financier’s account.

Small businesses usually expand or innovate their product line after a year of successful operations.  For start-up businesses which did not require the need for a small business loan, it would eventually need it to keep the business growing at a steady pace.  It is important to know what your options are even if you have no need of it right now.