Most small-business owners need to get a loan at some point, either to help get the business started or to fund an expansion. There are a number of loan options out there, so it helps to know which ones are best for your business. Here is a simple guide to choosing the best small-business loan.
For what purpose do you need the loan?
Before looking at the different loan options available, it helps to know what the loan is for. Different loan options might be better for starting up your business while others may be more appropriate for an expansion.
Small Business Administration Loans
The federal government guarantees loans for small businesses through the Small Business Administration. If you qualify for such a loan, the government will typically guarantee anywhere from 75 to 90 percent of the loan, which can make you much less of a risk to potential lenders. SBA loans can be a good option both for business startup and expansion. The drawbacks to such loans is that they involve a lot of paperwork and also have more fees than conventional loans.
Conventional loans are loans that you get from a bank without any special help from a government program. Conventional loans can be difficult for small businesses to get because of the risk involved to the lender. They usually are better for expansion than startup, because if you have an established business, you are less of a risk and you also may have collateral you can put up to get the loan.
There are other sources of loans out there. Peer-to-peer lending involves getting loans from private individuals. You also may be able to get loans from hard money lenders. While such loans may be easier to get than bank loans, they usually carry much higher interest rates and may have less-than-favorable payback terms.