Types of Small Business Loans

SBA
The Small Business Administration has numerous tools and information to aid the small business owner.  On top of the wealth of information they give, the SBA has many opportunities to gain capital.  According to their website, “banks and other lending institutions offer a number of SBA guaranteed loan programs to assist small businesses. While SBA itself does not make loans, it does guarantee loans made to small businesses by private and other institutions.”

Four types of guaranteed business loans that the SBA can help you with, they are:
•    7 (a) Loan Program
•    CDC/504 Loan Program
•    Microloan Program
•    Disaster Assistance Loan Program

Wells Fargo, one of the many banking institutions partnered up with the SBA outlines the loan process on their website and is shown below.

 
SBAExpress
SBA 7(a) Term Loan
SBA 504 Term Loan
SBA Patriot Express
Loan or Line of Credit
Line of Credit or Loan
Loan
Loan
Line of Credit or Loan
This SBA Solution Offers
A streamlined loan application process to access funding for working capital to purchase land, buildings, equipment and inventory.
Longer terms on loans to fund working capital, business start-up, business acquisition and real estate.
Longer term financing loans for businesses to purchase commercial real estate or to expand their existing operations, help the local economy and create jobs; to longer term financing loans for businesses to purchase commercial real estate or to purchase machinery/equipment, help the local economy and create jobs.
A streamlined loan application process to access funding for working capital to purchase land, buildings, equipment and inventory for veterans who are starting or growing their businesses.
Best For
For-profit businesses in a variety of industries.
For-profit businesses in a variety of industries, including those that are new, in start-up mode or recently acquired.
Existing and on-going for-profit businesses, with a net worth less than or equal to $8,500,000 and net profit after taxes less than $3,000,000 for the past two years.
Veterans and members of the U.S. military community who want to establish or expand small businesses.
Credit Amount
$5,000 to $350,000
SBA Loan guarantee cannot exceed $1,500,000.

Loan ceiling of $2,000,000.
$150,000 to $5,200,000 Maximum SBA Loan $1,500,000 (Up to $4,000,000 for small manufacturers).
Up to $500,000.
Rate
Loans and Lines of credit less than or equal to $50,000: NY Prime + 6.5%.

Loans and Lines of credit greater than $50,000: NY Prime + 4.5%.
Fixed or Variable.

Loan Term less than 7 years: NY Prime + 2.25%.

Loan Term greater than or equal to 7 years: NY Prime + 2.75%.
Wells Fargo Loan: Fixed or variable rate, negotiated between Bank and borrower.

SBA Loan: Below market fixed interest payment. Loan rate set when debenture is sold.
Fixed or Variable.

Loan Term less than 7 years: NY Prime + 2.25%.

Loan Term greater than or equal to 7 years: NY Prime + 2.75%.

Term Loan
Term loans are the simplest of all loans.  Term loans are paid monthly, and over a certain amount of time—depending on the amount and what your assets are.  A subset of a term loan, a short-term loan is usually set up to be paid back in a year or even less.  Short-term loans are customarily $100,000 or less.

Credit Cards

With many banks halting their small business lending, credit cards are becoming a more popular way to attain money.  A federal report is acknowledging this, and states, “as of the end of 2009, 83 percent of small businesses used credit cards; 64 percent used
small business cards, and 41 percent used personal cards.”

The American Express Gold Card for example, is a charge card that allows a business to extend cash flow up to 50 days with no interest or fees.  It is a charge card so you must pay back in full each ‘month’ but it does open the window of opportunity to make a purchase.

Chase INK cards (four in total) are Chase’s solution to extend business credit.  Their INK CASH card offers cash back for every purchase you make with the card, and offers free employee cards, and no annual fee.  The APR is 0% fixed introduction rate for the first six billing cycles that your account is open. After the introductory rate, the APR jumps up anywhere from 11.24% to 17.24%, depending on your credit history.

Traditionally, credit cards have been less desirable than traditional bank loans because the interest rates are higher with a shorter pay cycle. However, it has become much more popular in the last few years due to the difficulty of receiving a bank loan.

Factoring

Just like credit cards, factoring has become more popular over the years. This type of loan allows you to sell your unpaid accounts receivable (invoices) at a discount to a factoring company– in order to receive, you must have ongoing B2B receivables to sell off.  Factoring companies take on the debt owed and give you a percentage of what you would have received from your client.  

Merchant Cash Advance
Merchant cash advance (or sometimes called business cash advance), is similar to payday loans, where cash is given to someone in correspondence to a post-dated check.  To qualify for a merchant cash advance you must:
•    Accept credit cards
•    Generate X amount of revenue in credit card transactions—this number is usually around $3000
•    Provide proof of past financial information to ensure you generate these sales
•    Be void of liens on your business
•    Not be working with another merchant cash advance provider

Take into consideration your projected sales coming in, as this determines your relationship with the merchant cash advance provider.  If you fall below the amount of money required to keep the advance coming, you will no longer be able to do so.

Peer-to-Peer Lending

Peer-to-peer or P2P lending is a fairly simple idea—one person is looking for capital, the other is looking to invest, and are each are matched up through a website to discuss the potential investment.  Prosper, LendingClub and Peer-Lend are just a few sites to look into to get you started.

LendingTree is also a great choice.  With LendingTree, banks are put in a competitive environment, getting the best loan and interest rate for your company.  E-Loan is a similar site to help get the capital you need. iBank provides commercial lending marketplace for business loans.  They have over 335 lenders to help you in your search.
 

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