Starting a business can be very challenging and stressful. But it does not have to be so if you plan well and start small. One does not even need to have a huge capital to create a business that can be sustained for the long term.
Small businesses continue to be the backbone of major economies around the world. In the U.S., for instance, there are an estimated 28 million small businesses which have generated more than 65 percent of the net new jobs since 1995. In addition, approximately 543,000 new businesses are being launched on a monthly basis.
These statistics are clear proof of the sustainability of small enterprises. But they need careful planning and sufficient amount of money to start on the right foot.
Fortunately, aspiring business owners can apply for a loan if they are in need of capital. Those who may not need it at the start can always rely on these loans later once they decide to expand.
Types of Small Business Loans
Basically, there are four major types of loans that entrepreneurs should be aware of. These are the long-term, short-term, lines of credit and alternative financing.
Long-term loans are normally used for acquiring or expanding a business, refinancing and as a working capital. They involve a large amount but with lower interest rates and are repaid on a monthly basis. This type of loan is ideal for well-established businesses.
Short-term loans, on the other hand, are paid in full at the end of its term. The amount involved is usually below $100,000. As its name suggests, this loan is often used to meet short-term needs such as to build up inventory, complete small projects or raise cash for certain accounts payable. Banks and credit unions offer this type of loan.
A line of credit is another type of loan but this one allows business owners to avail of funds whenever they need it. It works similar to a credit card. The downside is high interest rates and other fees.
Other alternative forms of financing are also readily available today depending on your needs. These include cash advances, leasebacks, asset-based loans and crowdfunding resources.
Before applying for a loan, it’s important to determine your situation first and find out the necessary requirements from your preferred lending institution. Be sure to get to know your lender as well so you would be able to establish a good relationship moving forward and get the best possible advice in growing your business.
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