Popular Types of Small Business Business Loans

Every business faces significant cash flow challenges at some point, which may require borrowing funds to maintain business operations. For startups, financial difficulties can knock on the door early on.

Fortunately, small businesses that are struggling to fund all of their projects have several avenues to turn to for support. Finding a lender is not as tedious as it used to be, and the options are more numerous today. There are bank loans and business service providers. Some loan packages are offered by government agencies, which attract many borrowers as they come with collateral that other lenders cannot provide. Loans come in all shapes and sizes, and some are tailored to the specific needs of the lender. The availability of more than one option is an indicator that business owners should first assess their needs to ensure that a specific type of loan is indeed the best resource given their current situation.

Short term versus long term

Two basic types of loans available to small business owners are long-term loans and short-term loans. Long-established commercial lenders often offer long-term loans with low interest rates. The amount of money is large enough to cover large expenses, such as the additional capital required for the acquisition of businesses and related activities. Small businesses looking for working capital can approach these lenders, and they usually get approved if they have a formidable business plan.

Meanwhile, short-term loans are often issued by credit unions and banking institutions. While a long-term loan must be paid monthly, short-term loans are paid at the end of the contract term. The interest rate is usually higher compared to short-term loans. The retailer seeking additional financing for a short project that is expected to provide large returns in a short period of time can greatly benefit from this type of loan.

Alternative options

Aside from conventional sources of financing, borrowers can choose to take advantage of alternative loan offers, such as those offered by online merchants. Applying for a business loan now is quite convenient, as every step of the process can be done online. These offers are also faster to process. Access to capital is possible without the hassle of traditional procedures that require lots of paperwork. Alternative financing options work best to meet the needs of an expansion or to maintain operations when there is a shortage of cash.

Small businesses in the early stages of operation often struggle to meet stringent requirements. Alternative lending methods are relatively more flexible, including cash advances, crowdfunding, and peer-to-peer lending, among others. For small businesses, it is often easier and faster to obtain financing using alternative means. Many business owners opt for alternative financing methods, especially when they are in dire need of money. There are situations where the time frame is critical because the availability of funds determines whether or not the day-to-day operations of the business can continue.

It’s not that difficult, even for startups, to get approved for a loan if they have a good credit score and positive cash flow as well.