If you’re in the market for business funding, you may find that there are several different types of business loans available to suit varying capital needs. Read our guide to learn more about different types of business loans as well as how to choose the right funding option to help your company thrive.
Evaluate Your Funding Needs
It’s important to determine whether you need ongoing business capital, a larger lump sum or something in between. Additionally, business creditors can differ a great deal by the application and funding processes. For example, online lenders like OnDeck generally have a much faster application and funding process when compared to sources like banks and credit unions.
Review Business Funding Options
The next step in choosing the right type of business loan for your company is learning more about different types of business funding options. Some small businesses find that having more than one funding option available to them is ideal to help manage day-to-day costs as well as finance larger business expenses. Some business funding options include:
- Term loan: Sometimes referred to as an installment loan, this type of business loan is issued in one lump sum and is repaid in installments over time. Term loans are available from sources including banks, credit unions and online lenders.
- Line of credit: A business line of credit is a type of revolving credit that can be reused as the balance is repaid. With a business line of credit, you can borrow as much as your credit limit at any time. You can find business lines of credit from sources like banks and online lenders as well.
- Invoice factoring: This funding option allows you to sell an outstanding invoice to a business creditor in order to access a cash advance for the invoice amount. The business creditor is then responsible for collecting on the invoice (in addition to interest and/or fees applicable). Some online lenders offer invoice factoring options.
- SBA loan: This type of business loan is backed by the U.S. Small Business Administration and is available through SBA-approved lenders. Because of the federal guarantee, these loans can have a lower interest rate than other types of business credit, but the qualification and application process is considered more rigorous than other types of funding.
- Business credit card: Another type of revolving business funding is a credit card. This funding option allows you to make purchases on behalf of your business and repay at a later date. Similar to a line of credit, a business credit card provides ongoing capital access up to the credit limit. This funding option is available from banks, credit card issuers and similar business creditors.
Research the Loan Qualifications
Once you find the right type of business loan for your company’s funding needs, it’s important to learn how or if you qualify. Specific requirements for business loans can vary by lender, but generally address the same criteria:
- Minimum credit scores: Business lenders may require you to have minimum personal and business credit scores in order to qualify for a loan.
- Time in business: Lenders may also require your company to be in business for a minimum period of time to be considered for a loan.
- Annual revenue: Your business revenue can impact your ability to repay the loan, so lenders may require your company to meet a minimum annual revenue in order to qualify for credit.
- Required documents: Applicants may need to submit certain business documents for a business loan, including Articles of Incorporation, business license(s), permits and similar credentials.