6 Borrowing Options for Small Businesses

There are many options available for small businesses looking to borrow money. Each option has its own set of pros and cons, so it’s important to compare all of your options before choosing a loan. Here are 6 common borrowing options for small businesses:

1. Payday Loans

No business owner wants to find themselves in a tight spot regarding funding, but sometimes unexpected expenses pop up. If you need quick cash to keep your business afloat, a payday loan may be the right solution.

Before you choose any payday loan, it’s important to understand how they work. Payday loans are generally quick loans that must be repaid within a few weeks. The loan amount is typically based on your income and weekly or monthly money.

Payday loans matching services, such as Pronto Paydays, can help you find the best lender and get the money you need fast – sometimes in as little as 24 hours.

2. Microloans 

Microloans are smaller loans that are typically given to entrepreneurs and small businesses. The SBA offers microloans through their intermediary lenders, and the loans can be used for working capital, inventory, or startup costs.

The maximum amount you can borrow through a microloan is $50,000, and the average loan size is $13,000. Microloans have a maximum repayment term of six years, and the interest rates are typically between 8% and 13%.

To qualify for a microloan, you must demonstrate that you can repay the loan and that you have a business purpose for the loan. You will also need to provide collateral for the loan, and your personal credit score will factor in your loan eligibility.

3. SBA Loans 

The U.S. Small Business Administration (SBA) is a government agency that provides financial assistance to small businesses. One of the ways the SBA helps small businesses is by guaranteeing loans made by private lenders.

SBA-guaranteed loans can be used for various purposes, including expanding a business, buying inventory or equipment, or providing working capital. The SBA does not lend money directly to small businesses; instead, it provides a guarantee to lenders in case you default on your loan.

If you are interested in obtaining an SBA-guaranteed loan, you must apply through a participating lender. You can find a list of SBA-approved lenders on the SBA website.

4. Equipment Loans 

Equipment loans are a type of business loan that allows you to finance the purchase of new or used equipment for your business. Equipment loans can finance anything from office furniture and computers to manufacturing machinery and vehicles.

There are a few different types of equipment loans, including:

a) Term loans: Term loans are the most common type of equipment loan. They typically finance larger equipment purchases and have terms ranging from 1-7 years.

b) Lease financing: Lease financing is an equipment loan that allows you to lease equipment instead of purchasing it outright. This can be a good option if you don’t have the cash to make a large purchase or if you only need the equipment for a short period of time.

5. Business Line of Credit 

If you have strong business credit, you may be able to qualify for a business line of credit from a bank or other financial institution. This can be a good option if you need funds for short-term expenses or want access to cash in an emergency.

A business line of credit usually has a lower interest rate than a credit card, and you only have to pay interest on the money you borrow. However, you may be required to put up collateral, such as your business equipment or inventory, to secure the loan.

6. Merchant Cash Advances 

If you’re a small business owner needing quick access to cash, a merchant cash advance (MCA) could be a good option. With an MCA, you sell a portion of your future credit and debit card sales in exchange for an upfront sum of cash.

One of the main benefits of an MCA is that it’s easy to qualify for, even if you have bad credit. And, because repayments are based on a percentage of your sales, you don’t have to worry about making fixed monthly payments.

However, MCAs come with high fees and interest rates, so they should only be used as a last resort. If you’re considering an MCA, compare offers from multiple lenders to find the best deal.

Bottom Line

Small businesses have several options when it comes to borrowing money. The best option for your business will depend on your specific needs and financial situation.

If you need a small amount of money for a short period of time, a payday loan may be the best option. A business line of credit may be the best option if you have good credit and need a large amount of money for a long-term project.