Various loan categories
Small business loans can be extremely difficult to qualify for. Understand the options available, and the various loan categories can help you to choose the right lender and loan product for your business needs.
The first thing you need to understand when it comes to loan categories is whether the loan is secured or unsecured. A secured loan requires personal or company assets for collateral against the loan. An unsecured loan requires a good credit score not assets.
The next thing you want to consider is the term of the loan. There are both long and short term business loans. Short term loans in the business world reach maturity in a year or less. Long term loans reach maturity between one year and seven years.
Of course, one of the most obvious difference in loans is the interest rates attached to them. The following is a look at the typical or medium interest rates for the following business loan types:
- 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%
Next, it is good to understand the various loan products available, and what exactly they mean:
SBA loans- Government backed loans for small businesses. They are offered by private sector lenders who are SBA partners. Funding is offered from one to six months, and the payback period is five to twenty years. These are secured loans.
Equipment cash out refinance- This is where you basically sell your equipment for cash, then lease/rent it back. The lease value is approximately 50-75% of vendors valuation. The funding is one to two months. It is a secured loan.
AR or Accounts receivable factoring loans- This is where you use your account receivable as collateral for short term loans. The funding is less than a month, and it is a secured loan.
Merchant cash advance- These can be up to $150,000. And are an advance against regular occurring monthly credit card sales. Funding is less than one month. It is a secured loan.
Start-up loans- Start up loans offered by private sector financers. The funding is between one to five months, and the payback period is five years. These are secured loans.
Franchise start up loans - Special financing loans reserved for nationally known franchises. They require 10-30% of the capitalfrom the borrower, it are secured loan option.
Business acquisitions- Loans used to acquire an existing business. Funding takes one to nine months. They are secured loans.
Line of credit- A line of credit offered based upon existing inventory. A/R and PO's or up to $200k in business credit based on credit worthiness, and without collateral. These can be secured or unsecured loans. Funding is 2-6 months.
Of course this is only a sampling of the various loans available to businesses. Understand your options to get the best loan for your company.