What are my business loan options?
Every business—even within the same industry—is unique. Finding, applying for, and securing the right source of financing will depend on many factors. You could get substantial sums of money—usually more than six-figures—from venture capitalists, but you could also lose much of the control of your company. Then again, owning 60% of a large, successful business is better than owning 100% of a failing one.
Then there are angel investors looking to invest windfall money in businesses with strong potential. If you pursue this, be sure to have a well-developed business plan.
In terms of business loans, there are six common types:
- Standard 7(a) loan: These loans are guaranteed by the Small Business Administration but issued through approved lenders with various conditions of the application. According to the SBA site, “Lenders are not required to take collateral for loans up to $25,000. For loans over $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount.”
- 504 SBA loan: If you have substantial assets and can show how your business will create jobs in the community, you may be eligible for a 504 loan.
- Low doc loan: The low documentation loan focuses on the applicant’s character and personal credit, making it an excellent choice for businesses that have not yet established credit history.
- SBA Microloan: The Microloan program provides loans up to $50,000 to help small businesses start-up and expand. The average microloan is about $13,000. If you think this is the type of loan for your business, contact your local economic-development agency.
- Industry-specific loan: Depending on your business, you may be able to select from among loans designed for specific industries and trades.
- Home-equity loan: If you are OK securing your investment with some or all of your home’s equity, you can take out a home equity loan or line of credit.
For information on COVID-19 emergency loans for small businesses, check the U.S. Chamber of Commerce’s guide here.
In related news, the SBA is now accepting a second round of applications for the Payment Protection Program.
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