3 Useful Types of Small Business Loans
It is typical for small businesses, and particularly new small businesses, to be perpetually short on cash. Margins tend to be tight, particularly with the high costs of starting a business. Sometimes, there simply is not sufficient money for needed additional expenses — like hiring more staff, expanding or renovating a physical space, or purchasing additional inventory or supplies.
In such cases, having access to additional financing may be helpful, or even necessary, to the long-term health of your business. With that in mind, below are three useful types of small business loans that may be worth considering for your business.
1. Asset-Based Loans
An asset-based loan is lent to your business on the basis of some asset — real estate, inventory, equipment, or something else — that you put up as collateral. An asset-based loan can be a quick and effective way to secure funds for all sorts of purposes, provided you have a valuable asset that can be utilized.
Make sure to be careful with any loan, though; a default could mean you will lose whatever you’ve listed as collateral, which could be devastating to a young business.
2. Lines of Credit
Lines of credit are useful, recurring loans for small business. A line of credit sets a borrowing limit, and allows you to draw funds up to that given amount. Once you have repaid what’s borrowed, the available limit for funds is re-established.
Lines of credit can be a very useful resource to draw from, in all sorts of cases. Best of all, a line of credit does not have to be used; you simply borrow from it when money is needed.
It is also worth noting that regular repayment of a credit line will help strengthen your business’ credit profile, potentially allowing access to more substantial loans down the line.
3. SBA Loans
SBA loans encompass a wide suite of government-backed small business loans, and can be used for purposes ranging from buying owner-occupied real estate to establishing a line of credit. Because SBA loans are designed to support small businesses, they tend to have favorable rates and terms for young businesses.
SBA loans are offered through commercial banks and credit unions, and speaking to a loan officer about varying types of SBA loans may help you determine if one matches your needs.
In short, there are numerous ways for small businesses to raise needed cash. Considering the options above, and others, may suggest possible financing avenues for your company.