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Choosing From Different Types of Small Business Loans

Choosing From Different Types of Small Business Loans

Business merchant cash advances, small business working capital, loans for equipment – when it comes to borrowing, you have a wealth of options. However, that variety can make choosing which type of small business loan is best for you more difficult.

In order to ensure you obtain the right type of loan, you first have to understand the different options available.

Traditional vs alternative lending

Whereas banks and credit unions used to be the only players in the small business lending game, the landscape has changed drastically in recent years.

“Small business owners are seeing new, alternate ways to access capital and are able to access it at a much faster rate,” Kristy Campbell, director of marketing and communications at small business resources firm Manta, told Fox Business. “While traditional loans are still available, the requirements can be difficult for many businesses – especially those in the early stages – to meet. Newer options offer added flexibility and can more easily meet quick cash flow needs.”

Being able to access funding from new types of lenders was also the topic of conversation between National Funding Founder and CEO David Gilbert and Forbes recently.

“Our one-on-one approach is significantly different from that of a large bank,” Gilbert told Forbes. “Our credit window is wider than what a bank would consider, so we see a lot of people that have been turned down there. Additionally, our process is much faster, so where a bank may take 30 days or even longer to put something together, we can do it in as little as a day. That’s not the rule, but on the other hand it’s not uncommon either. There’s also less paperwork required, which also makes it easier to do business with us.”

A variety of loan options

Besides from where they originate, many differences exist in the structure of the loans themselves.

The most common type of small business loan is arguably the working capital loan. This option is intended to provide small businesses with the funds they need for day-to-day cash flow. This money can be used for everything from inventory and expansion to bill consolidation and advertising.

However, working capital loans are far from the only option available to small business owners.

For instance, merchant cash advances provide businesses with cash but also come with more unique repayment terms than a straightforward working capital loan.

Whereas a standard loan would have some type of repayment schedule, it’s possible for owners to obtain funds through a merchant cash advance and only pay it back as they themselves get paid. This is accomplished through the lender taking a small fixed percentage of daily credit card transaction sales. Many business owners may find this a more suitable option for their enterprise, as it prevents them from having to make payments if their business is not bringing in money.

Of course, equipment leases are a type of loan as well. If a business doesn’t have the funds to purchase needed equipment outright, it can turn to equipment financing to obtain it. This option comes with many advantages, and plenty of business owners turn to leasing even if they do have the funds necessary to purchase equipment.

Just as with traditional loans, there are various types of equipment leases to choose from. However, all of them offer the chance for business owners to keep cash funds from being depleted by a purchase while also enjoying unique tax benefits.

This explains why 85 percent of all companies lease equipment, from general business offices and restaurants to agriculture and fitness centers.

Making a selection

Before you pick your loan option, it’s important to take your specific needs into account. How much money you need, what it will be used for and many other factors can influence which type of loan makes the most sense to borrow.

It’s also vital to weigh your options regarding who to borrow from. Is a potential lender offering you all the money you need? Do they feature flexible repayment options? Is the paperwork simple and straightforward? You owe it to yourself to partner with a lender that has your best interest at heart.

Regardless of your choice, be sure to plan well in advance. Knowing your needs upfront will allow you to avoid numerous headaches and be in a better position to capitalize on your increase in funding.


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