small business loan

What the Right Small Business Loan Is for Your Needs

posted in: Blog

There are many reasons for a business to take out a small business loan, and many businesses do as part of their short- and long-term goals based upon their business plan. In fact, 43% of small businesses reach out to lenders for financing of some sort.

As a small business owner, your circumstances are unique and so finding the right financing fit can be a challenge. That is why knowing which loans are available to you can make or break your business.

In this article, we will help you find a business loan that is right for you. Keep reading to find out more.

Ask Yourself Some Important Questions

Before you know what small business loan is right for you, you need to answer some essential questions about what you need and why you need it. Here are just a few of these questions to keep in mind:

  • How much financing does your business need?
  • What are the reasons for you taking out a loan?
  • How much time will you need to pay the loan back?
  • What are your business finances like now?
  • Do you have any collateral to use for the loan?
  • What type of credit do you have, and what’s your credit score?
  • Are there any other loans you’re paying off currently?
  • Do you need a long or short-term loan?

The main thing is to figure out exactly how much money you need, how your business will use it, and how long you will need to pay it back. Knowing your credit score will help you understand what type of interest rates you can expect, which could impact your ability to repay the loan and the speed with which you can repay it.

Small Business Administration Loan Programs

Small Business Administration is a government agency that helps get small businesses to access essential financing for a variety of reasons. They do this by working with lenders and guaranteeing up to 70% to 80% of the loan. Thus, lenders are more willing to take the risk of lending to small and medium businesses looking for financing.

Since the government partially guarantees SBA loans, financial institutions find themselves in a better position to work with these businesses, making it easier for them to gain access to critical financing opportunities. What are a few of the different loan types including under the SBA program?

7(a) Loan Program

This option is the primary lending program of the SBA. It is a basic and flexible loan program, making it useful for a variety of purposes or needs. Some of the reasons to take out a 7(a) Loan can include financing inventory, furniture, supplies, machinery, equipment, construction, land, new buildings, business expansion, business acquisition, debt financing, and more. As you can see, there is a lot that you can do with a 7(a) Loan and all of these things can be critical to your business, especially as it meets the current challenging business reality due to the COVID-19 pandemic.

The maximum amount of a 7(a) Loan is $5 million. Any borrower can apply through a lender that participates in the SBA program. Of course, the lenders themselves may have criteria as well, so be sure that you discuss the requirements with your lending institution before applying.

Microloan program

This program from the SBA is for small loans up to $50,000. They are used for new or growing small businesses that need working capital to expand or to increase efficiency and thus improve their customer retention.

The money can also be used to purchase supplies, inventory, fixtures, furniture, equipment, machinery, etc. However, the microloan program does not allow loans to pay off existing debt or purchase real estate, so do not assume it can be a way to pay off high-interest debt.

Real Estate and Equipment Loans

These loans allow the borrower to finance things like equipment and real estate. It is not permitted to use the funds for inventory or working capital. The maximum loan amount of a 504 loan is $5.5 million. Since it functions like a mortgage, there may be additional requirements regarding insurance on the building or equipment as part of your loan terms.

Disaster Loans

These are low-interest rates used to repair or replace business assets destroyed or damaged in a disaster. The maximum loan amount offered is up to $2 million. Keep in mind, if your business is located in an area where disasters are more common, this type of funding may be limited in availability.

Other Types Of Business Loans

Although SBA loans are very common programs to use when taking out a small business loan, other traditional loans are available to you. However, we wanted to look at these loan programs first, as they are an excellent resource for small businesses.

Curious about other small business loans available to you? Contact us to find out more!