03 Jan Types of Small Business Loans: Which is Right for You?
Are you looking to invest in financing for your small business? Deciding which type of small business loan to choose isn’t a “one-size-fits-all” situation. It pays to do your research and learn about the different types of lending options available. We’ll walk you through the major types of funding, introduce the different types of lenders, and help you assess which one is right for your business needs.
Working Capital Loans
Access to working capital keeps your business moving. With steady cash flow, your business can keep up with rent payments, stock up on inventory, pay your staff…the list goes on.
Working capital financing might be just what you need to bring your business to the next level. This is essentially a short-term loan that aims to cover temporary cash deficits. When you take on working capital loans, you’re not getting into a long-term commitment. In fact, you can often plan payback terms that are less than 12 months.
How do you know if working capital loans are right for your business?
If you work in a seasonal industry that ebbs and flows throughout the year, you might need some extra working capital to cover different, short-term business expenses. For instance, retail businesses may need some extra cash on hand to hire and train seasonal staff during the holidays. Or a small florist might need extra inventory to cover the biggest flower-giving holiday of the year: Valentine’s Day.
Whatever your short-term cash needs, working capital loans can help keep your business on track.
Business Lines of Credit
This type of financing grants borrowers a line of credit with a maximum limit they can take out. Lines of credit are similar to credit cards, which charge interest based on the money borrowers draw. These types of loans are flexible, giving business owners the ability to spend the funds however they see fit.
Whether you’re trying to update their business equipment or expand the size of your storefront, you can use a business line of credit to cover the costs. You’ll just have to ensure you’re making all required minimum payments and not going over your limit. As long as you’re keeping these things in check, you can continue using your line of credit for as long as you’d like.
We don’t recommend lines of credit for all business owners, however. In particular, it’s worth noting that they’re harder to qualify for if you don’t have a good credit score. The net costs of business lines of credit are often higher than most other small business loans due to all associated fees. Additionally, unlike most small business financing that has a set and definite amount of spending, lines of credit may tempt you to use your available credit on items you don’t need. If you decide to invest in a business line of credit, it’s essential that you practice caution and be sure to only spend on essential items.
Unsecured Business Loans
Another one of the most common types of small business loans is unsecured business loans. These loan types are a helpful option for small business owners who need some quick cash to pay off any outstanding costs. And unlike most traditional, long-term financing options, unsecured business financing is not backed by the company’s collateral or assets. This means there are usually no liens placed on the business.
Even if the business owner is not able to pay back an unsecured loan, the lender does not have the right to seize the business’s assets, as they might with a secured loan. This added protection makes unsecured loans a great resource for small businesses looking to bounce back after facing financial hardship.
Traditional vs. Alternative Lenders
Once you’ve decided that your business could benefit from small business financing, regardless of the type of small business loan, it’s time to decide on the lender you’ll rely on for your loan. You might choose to apply to traditional lenders such as large-scale banks for your loan. However, you might look to seek out small business loans from an alternative lender.
In recent years, small businesses have turned to alternative lenders more than ever. There are many reasons for this trend. Two of the main differentiators between traditional and alternative lenders are the speed of loan approval and the chances you’ll be approved for financing.
Speed of Approval
Plenty of small business owners prefer the quick approval that alternative lenders offer. Many online lenders approve business owners within 24 and 48 hours from the moment they submit their applications. This is much less time than the weeks it takes to be approved by a traditional lender.
That means you can receive funding from an alternative lender even before finding out whether or not you’ll be approved by a traditional lender. For business owners who need cash immediately, which is often the case for small businesses, alternative lenders’ fast turnaround rates are often very appealing.
Likelihood of Approval
In addition, alternative lenders have higher approval rates, especially for borrowers with low credit scores or poor cash flow, than traditional banks. So after weeks of waiting for approval, you may not even be approved for funding by a traditional bank.
When you decide to work with an alternative lender like QuickBridge, you can rest assured that your business is in good hands. Our Funding Advisors have experience in a number of different industries and can provide sound guidance no matter what financial shape your business is in.
As you can see, the decision to take on a small business loan, and what type of lender to use, depends on your specific business needs. Take the time to do some research and choose the lending option that is the best fit for your business.
Not all business loans are created equal
Get the right funding, right now with QuickBridge.