Business loans can play a pivotal role in: a) leveraging potential long-term business growth opportunities, b) resolving any legal disputes or cash flow problems that arise, and c) enlarging the value of a business holistically.
Having said that, the broad range of business loans that are available inadvertently mean that- depending on your business’s specificities and structure, some types of business loans may be more suitable than others.
The reasons for getting a business loan can also vary significantly- from wishing to buy or upgrade a company’s equipment to investing in real estate.
The Really Useful Information Company (TRUiC) has recently produced an online guide which accurately and indepthly delineates the variety of business loans that businesses are currently able to utilize.
SBA 7(a) Small Business Loans
SBA 7(a) small business loans are loans which are legally guaranteed by the Small Business Administration.
Acquiring such loans usually involves liaising with potential lenders who can then assess a business’s financial situation and determine whether it satisfies the relatively strict prerequisites of obtaining an SBA 7(a).
Generally, SBA 7(a) loans tend to be great for small and startup business owners who may not have the required business credit score to acquire sufficient investment capital via other means or financial investors.
TRUiC has briefly laid out the statutory requirements that businesses will need to satisfy if they wish to pursue SBA 7(a) loans, these include (but are not limited to) business which:
- Operate for profit (non-profits are not eligible).
- Operate within the U.S (or its territories).
- Satisfy the ‘’small business’ definition as defined by the Small Business Administration.
- Have already attained a high level of invested equity.
- Demonstrate an adequate need for a business loan in the context of their specificities.
Business owners can additionally choose to plan their business finance strategy with the help of Obsidian Bear Funding’s Course.
Working Capital Loans
Working Capital Loans are primarily extended through conventional banks; unlike SBA 7(a) loans, Working Capital business loans can be granted for practically any business purpose. One of the biggest benefits of Working Capital Loans according to TRUiC is that business owners are only required to pay interest on the capital that they pragmatically use, not on the total amount borrowed.
This means that (overall) business owners can retain a much higher degree of safety, predictability, and flexibility.
Additional advantages include:
- The ability to borrow and repay capital extremely quickly and without a lot of rigmarole.
- The ability to keep the same business ownership structure; there is no requirement to sell a share of a business owner’s company in exchange for funds.
- The ability to avoid collateral damage, with business owners not having to personally ‘gamble’ their own assets in case of insolvency.
Microloans generally involve small business loans that range between USD $5,000 and $50,000; this means that (usually) business owners interested in acquiring microloans generally rely on either nonprofit organisations or government agencies- rather than conventional banks which seldom grant such ‘small’ business loans.
The Small Business Administration (briefly introduced above) offers microloans through a relatively simple process- involving a very low amount of legal prerequisites. The most important ones are that: a) lenders do not use the microloan amount acquired to refinance other existing debt that they possess, and b) they do not use the microloan to purchase real estate.
Business Term Loans
As TRUiC explains in their guide, a business term loan is practically the epitome of a ‘’conventional’’ business loan process. It involves businesses borrowing capital from an established financial institution- such as a bank or a VC firm, which is handed over in full and repaid over several different time-intervals in a pre-agreed and set long-term period.
Business Term Loans can provide a plethora of advantages to small business owners, these include increased business credit score protection, relatively fast funding, and zero added balance sheet debt.
A Final Take
The above list (which is based on TRUiC’s in depth analysis) provides an excellent primitive description of the majority of the most common types of business loans in 2021.
Having said that, business owners should still carry out their own market research before applying for a business loan, as there are a plethora of elements to consider which will be based on a business’s specific industry and business entity structure.
TRUiC’s Business Loan Calculator can ensure that starting businesses are fully prepared to take the steps necessary to repay their loans adequately and on time in the future by providing them with all of the relevant information that they will need.