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Loan types for businesses

With the economy the way it is, and many entrepreneurs lacking the finances to get their businesses going, it is important to understand the types of small business loans available. There are many lenders, but they are awarding fewer loans than ever, thus choosing and applying for the right loans to the right lenders is key in your success in obtaining a business loan.

The following is a look at the wide variety of available business loans, and the terms, basic interest rates, etc. for them. Understanding your options is key to success.

The first thing to understand is that not all loans are created equally. There are secured loans, which use collateral. There are unsecured loans, which are based on your credit worthiness. There are short-term loans, that are paid back within a year, and long-term loans that take far longer to mature. Evaluate your business, and ask yourself what kind of loan you need. Do you have assets? Are you willing to stake them as collateral? Do you have a good credit score? Do you just need a short-term influx of cash to get you through, or do you need financing for a big purchase, acquisition, etc.? These questions are key to choosing and applying for the right loan type.

Next, consider what you are going to pay for the loan you get. Some loans cost more than others. In other words, what is the interest rate? Can you afford to borrow money at the rates offered? Is the loan worth the cost? It is good to note that SBA loans typically have lower rates than other loan options, and unsecured loans (like a credit card) will carry the highest rates. The difference in loan interest rates is not minor, business loans can start out around 3-4% and jump as high as 30% or more. This means that the cost of borrowing matters.

Last, look at your needs, and what loans you can't get because you wouldn't qualify, and determine from the list below, which loans would best fit your situation. It is good to have an idea of the loan type you prefer, and a backup option to help you meet your needs. The following is a list of some of the loan types available, and the traditional interest rates they carry, although interest rates vary by lender and applicant. Your credit worthiness, assets, collateral, and business history will all play a role in the loans you qualify for, and the interest you will pay to borrow.
- SBA loans- 5.8-8.5%
- Accounts receivable factoring loans- 10-15%
- Merchant cash advance- 18-22%
- Start-up loans- 5-7.5%
- Franchise start up loans- 10-30%
- Business acquisitions- 4.75-7.5%
- Line of credit- 5-24%
- Professional loans- 5-10%
- Equipment financing- 8-25%
- Construction financing- 7-8%
- Hard money equity loan- 15-30%
- Working capital loans- 3-7%
- A/R or P.O. Financing- 8-30%
- Peer to peer loans- 6-36%

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