What will be the first thing you will do when you have to open a new business in the market? Consulting the bank and knowing your financial status will be the first steps. You will need an investment to start your small business and thus an (SBA) Small Business Association Loan. If you are confused about which SBA loans to get and what banks to pitch, worry not since we have got you the perfect solution.
In this article, we will discuss different types of (SBA loan Maryland) small business association loans, their features and pros & cons, so that you know what small business loan to get and what benefits you can acquire out of it.
Types of small business loans
1. SBA loans
Small Business Association (SBA) loans are the best type of loans that you can get with the benefit of lower interest rates and fees. It generally has a longer application period due to a large number of applicants. So if you are not in hurry to get your loan accepted, SBA loans will suit you.
Advantages
- Flexibility in terms of the required borrower equity investment
- Lower down payment requirements
- All new and established businesses can apply for SBA loans
Disadvantages
- Require additional paperwork
- Collateral is required, including a personal guarantee
- A slow application process
2. Term loans
In term loans, you simply have to repay a part of the lump-sum money within a fixed period of time. The monthly repayments and additional interest rates are fixed in this loan type and you have the liberty to use the capital as you wish.
Advantages
- It’s a cheaper source for medium tenure financing
- Interest payable is a tax-deductible expenditure, thus tax benefit on interest
- Terms & conditions are negotiable
Disadvantages
- Obligation on timely repayment of principal
- Restrictive covenants are placed by the lenders leading to useless interference in the functioning of the concern
3. A business line of credit
If you are not sure about the demand for the capital required to run the company, a business line of credit can be an ideal loan type. Its works similarly to credit cards where you can withdraw a set amount of capital, repay it and then re-withdraw.
Advantages
- Quick access to capital
- Separate personal and business expenses
- Cover your expenses anywhere, anytime
- Lower average APR than credit cards
Disadvantages
- Non-deductible interest expense
- Not ideal for debt consolidation, higher rates than fixed-rate loans
- Poor solution for long-term cash requirements
4. Equipment loans
As the name suggests, equipment loans finance buying huge machinery or types of equipment, for which you do not have the capital. It aids you in buying huge equipment or parts and uses the equipment itself as collateral.
Advantages
- Gets you money to buy or repair equipment
- No need for additional collateral
- Spreads your capital on the purchase
Disadvantages
- Can only be used for equipment
- Higher rates than traditional loans
- You will be responsible for the equipment
5. Commercial real estate loans
Commercial real estate loans aid you in financing new or existing properties such as offices, warehouses and retail spaces. They have the same policy as term loans in the matter of lump-sum repayments.
Advantages
- It will give you access to a large sum of capital
- Has long-term repayment tenure
- Has low-interest rates than traditional loans
Disadvantages
- A long application process
- Has high applicant requirements
- Lack of repayment flexibility
6. Micro-loans
Micro-loans, as the name suggests, are a loan type which will provide you with a capital of $50,000 or less. It can be a good choice for new business owners who don’t require a large cash flow.
Advantages
- It has a low-interest rate
- Need little to no collateral
- A fast way to secure financing, don’t have a long procedure
Disadvantages
- Only provides small capital
- Has short repayment terms
- Has restriction on the use of capital
7. Merchant cash advance
It’s an easily approved loan type which generally comes at larger interest rates. Instead of traditional unpaid invoices, they take your credit card details as collateral.
Advantages
- It has a fast funding procedure
- No fixed monthly instalments
- You can get qualified despite of low credit score
Disadvantages
- Most expensive business loan
- Funds get deducted daily, impacting your cash flow
- A temporary solution to a business solution
8. Franchise loans
The last business loan type, franchise loans provides you with the capital for an upfront fee to open a franchise. This loan type aids you to achieve your business goals without starting from scratch.
Advantages
- Helps cover legal fees for a franchise attorney
- Provides costs for supplies, inventory and day-to-day operations.
Benefits of small business loans
The following are some general benefits of business loans:
- Flexibility of usage
- Convenient and easy
- Reasonable interest rates
- Tax benefits
These are the types of small business loans and their pros & cons. Comment a drop below for further queries.
