Small business loans are vital to the success of many companies. However, you might not realize that there are many options to choose from. Before applying for an SBA loan, it’s essential to understand the difference between some of them to know the best option for your company. Here are four types of SBA loans to consider.
1. Invoice Financing
Late payments are a nightmare for most businesses because you don’t have the capital you need for your business to run efficiently. Instead of waiting for your clients to pay their past due amounts, you can get an accounts receivables line of credit through the SBA. This financing type differs from invoice factoring because your clients don’t pay their past due amounts to an outside company. They continue to pay you like normal, and you use their payments to pay down your line of credit.
2. Term Loans
If your business needs capital to help it grow, you should look into term loan options. With a term loan, you start paying the interest back monthly, with the principal amount being due anywhere from six months to three years later, depending on your repayment terms with the lender. This SBA loan has secured and unsecured options and fixed or variable interest rates. Speak with your lender to know which option is best for your company to help you avoid having a large balloon payment at the end of your repayment period.
3. Equipment Loans
A business without up-to-date equipment is dead in the water. If you need to expand your fleet of vehicles, update your computers or software, or need to purchase new equipment for a commercial kitchen, you’ll want to get an equipment loan. Lenders typically require 20% of the purchase price as a down payment, and the equipment purchased is used as collateral for the loan. Interest and principal payments are made monthly over two to four years.
4. Line of Credit
When you want a constant stream of money without continually going through the loan process, you want to choose a line of credit. Business lines of credit work the same way credit cards do. Your lender approves you for a specific amount of money, and that money is always available as long as you continually pay down your balances. Additionally, you only pay interest on what you use. Lines of credit are helpful because you can use the money for anything your business needs.
An SBA loan can mean the difference between success and failure as a business owner. Knowing the differences in the types of loans available can help you make the best choice for your company.