How to find the best working capital business loans for your small business

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Many people ask the question as to how they can find the best working capital business loans for their small business. However, now they do not have to worry as this guide will solve all their queries related to small business loans. 

Although, choosing the right loan type and small business lender can be hard, with our guide it can become easy. Through it, you can know about the various types of lenders, so that you can decide which small business loan lender is the best for you. 

Before you apply for a small business loan, you must ask yourself some critical questions, which will help you to determine the best lender for yourself. These questions include:

  • For what purpose you require the money?
  • How much money you require?
  • How much time will you take to pay back the loan?
  • How fast do you require the money?
  • In what financial shape is your business right now?
  • For how long have you been doing this business?
  • What is the collateral amount (if it is there) you need to put for the loan?

By answering these questions, you will be able to determine, whether you should opt for a government-backed loan,  cash advance, line of credit or loan via bank, or a loan or line of credit from an alternative lender. 

So, let us look at the different types of lenders that offer working capital business loans for small businesses and know everthing about them. 

Small Business Administration Loans (SBA)

Image courtesy: Wikimedia Commons
Image courtesy: Wikimedia Commons
  • The SBA or Small Business Administration provides various loan programs, which are designed as per the various business types and their financing requirements.
  • The government does not directly lend money to businesses through these loans, but it sets some loan guidelines created by its partners, including community development organizations, micro lending institutions, and banks.
  • The SBA eliminates some of the lenders’ risk by assuring them repayment of their loans.
  • There are various types of SBA loans, from which businesses can make a choice. Each of the loan type has its own stipulations and parameters as to when it should be repaid and how the capital can be used.

Pros

  • The guaranty provided by the government, which generally covers about 75% to 90% of the loan, reduces the lender’s risk.
  • The SBA loan terms are more favorable for borrowers.

Cons

  • SBA working capital business loans require filing of additional paperwork.
  • They require extra fees.
  • They take longer for approval.

Conventional Bank Loans

  • Banks also lend conventional loans, apart from SBA loans.
  • The major difference between non-SBA conventional loans and SBA loans is that in the former one, the government does not guarantee that the money will be paid back to the bank.
  • Bank loans do not have stringent usage terms as compared to SBA loans, although a particular plan still needs to get consent.

Pros

  • The major advantage of a conventional bank loan is that they have low rates of interest.
  • They can get faster approval as they do not involve a federal agency.

Cons

  • These loan types generally involve shorter repayment periods as compared to SBA loans.
  • They comprise of balloon payments.
  • Conventional bank loans are hard to get approved.

Alternative Lenders

Image courtesy: Wikimedia Commons
Image courtesy: Wikimedia Commons
  • Small businesses that do have a huge financial history prefer alternative lenders, as these types of lenders do not have stringent approval requirements for working capital business loans.
  • Alternative lenders generally provide online applications, decide approvals in a few hours, and provide the funding within 5 days.
  • There are lending marketing places that offer multiple loan options to small businesses from different direct lenders and direct alternative lenders that directly lend money to small businesses
  • Some of the popular lending marketplaces are Biz2Credit and BizFi and direct alternative lenders are Fundation, OnDeck Capital, and Kabbage.

Pros

  • If you want to work with alternative lenders, then your business does not require an ideal financial status.
  • There are only a few restrictions on the usage of the money.
  • Instant approval of loans.

Cons

  • The interest rates offered by alternative lenders are considerably higher as compared to a bank.

Now that you know about the different types of lenders for working capital business loans, you can choose the one, which suits your small business the best. Additionally, you must compare all the options as per the APR and fees.

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