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10 Kinds of Business Loans You Need to Know

When you’re looking for financing for your business, there are many different types of business funding models you can choose from. Some business owners might think that a conventional bank loan is the only source available. But the truth is, there are plenty of other creative types of business financing you can leverage to keep your enterprise operating smoothly.

You can find out more about ten different kinds of business loans available in this helpful article. We’ll show you what you need to know before taking out a loan so that your company is a success.

Different Kinds of Business Funding

There are many different funding tools for business financing. These mechanisms include cash advances, government or bank loans, bridge loans or other alternative lending models. Here is a deeper look at a few of them.

Private Bank Term Loans

Term loans are offered by banks and private lending institutions. When a business is approved for the loan, they make either monthly or quarterly payments for an agreed-upon amount of time. Term loans are either classified as intermediate (repayment due in three years or less) or long-term (repayment due in three or more years.

Some specific examples of private bank loans include:

1. Commercial Real Estate Loan

Commercial real estate loans are for income-generating enterprises that plan to use a building exclusively for business purposes. Examples of these business purposes can include apartments, office complexes or hotels. A commercial real estate loan is designed like a mortgage loan that secures commercial property by lien instead of residential property.

2. Business Line of Credit

With a business line of credit, your bank evaluates your credit history and may agree to fund you an amount within a certain limit based on your previous credit performance. When you draw funds from your business line of credit, you will need to repay the full balance before the current billing cycle ends. The remaining balance will incur service fees and interest if you don’t.

3. Equipment Loans

Equipment loans help companies buy the various pieces of equipment they will need to produce their products or deliver their services. This type of business loan is used as collateral against the actual equipment eventually bought. If the borrower fails to repay the loan, the lender can repossess the equipment.

Government Loans

With these loans, the Government- doesn’t directly loan money to businesses. Instead, they develop advisories and policies for lenders to negotiate directly with a business. The government guarantees that these loans are repaid which can lessen the risks to these lenders.

The most popular government-backed loans are Small Business Administration loans. The US Small Business Administration (SBA) manages these loans to companies that have less than 250 employees and generate less than $750,000 in annual revenue. Check the list of small business designations in the U.S. Census Bureau industry code to see if your company qualifies.

Some examples of these types of business loans include:

4. Microloan Program

Microloans allow smaller companies to borrow “micro-level” or small amounts to cover their everyday business expenses. Although microloans usually average around $13,000 per borrower, the maximum amount that an individual business can apply for is $350,000. Non-profit organizations can also apply for microloans to help with start-up costs.

5. 504/CDC Loan Program

A 504 or Certified Development Company (CDC) loan is a long-term loan that supports small companies that contribute to a community’s economic development goals. The 504/CDC loan offers fixed rate, long term loans for major investments in machinery or real estate. Small businesses can also use a 504/CDC loan to renovate or buy a building.

504/CDC loan awards are usually $5 million or lower. The SBA guarantees 504/CDC loans for 40 percent or less, and commercial lenders will fund the rest. Most 504/CDC loans have between a 10 – 20 year maturity period.

6. 7(a) Loan Program

The SBA 7(a) loan program is a great way to pay for many business start-up costs like purchasing uniforms or delivery vehicles. Some small businesses use 7(a) loan funds to develop a revolving fund that they can use for sporadic costs throughout the year.

7(a) loans can total no more than $2 million per small business borrower. The SBA will guarantee a 7(a) loan for approximately 75 percent or around $1.5 million.

7. Small Business Grants

Small business grants provide small amounts of startup money to small businesses for specific agreed-upon items. Unlike bank term loans, these grants don’t have to be paid back. There are more than 20 different grant categories of funding that a small company can apply for.

8. Rapid or Bridge Loans

If small businesses are looking for a fast response, a rapid or bridge loan provides a quick, temporary financing “bridge” while they wait for long-term, financing. Small business owners use these loans to cover their costs while they search for permanent business capital. A bridge loan can be closed in less than 30 days.

9. Crowdfunding

Crowdfunding is a way to build funds through collective donations from your friends, family, and investors. Crowdfunding platforms give an entrepreneur one sole site to present their low-cost company project and request financing. Entrepreneurs identify a goal for how much financing they plan to raise and your connections can use this site to invest their funds.

10. Merchant Cash Advance

Merchant cash advances are payments to a business in exchange for a portion of their expected future credit or debit card sales. Merchant cash advance terms will include short-term payment time frames (i.e., payments made at the end of each day for 24 months.) This flexible business funding tool is a great resource for those companies that have regular credit card or point of sale (POS) transactions.

Next Steps

Feel like you’re ready to leverage these kinds of business funding tools? The good news is you can start today! Go to the US Census Bureau website and check their list of industry codes to determine if your company fits the definition of a “small business.”

If you need faster assistance while you look for longer-term funding, apply for a bridge loan. You might find that this short term fix is the best choice for you.

Don’t forget to check our website for more helpful business advice to manage your company. We can make your job easier by providing assistance with common business tasks.