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If you need a small business loan, you have a seemingly endless number of options. National banks, regional banks, credit unions, online lenders, microlenders, and the Small Business Administration (SBA) are all ready to help you secure funding. The application process, borrowing requirements, repayment terms, and speed of funding will all vary depending on the lender. For example, some lenders require solid credit scores, collateral, and substantial revenues, while others can approve loans with average credit scores and limited cash flow.
Which begs the question: What is the easiest business loan to get?
This Balboa Capital blog article dives deep into the most popular types of business loans that are out there. You will learn what makes each loan different so you can pick the easiest option, one that saves you time so you can focus on running your business.
Secured business loans.
Banks, SBA-approved lenders, and other types of lenders offer secured business loans that, in most cases, have lower interest rates (fixed or variable) and lengthier repayment terms. In addition, secured loans are seen as less risky to lenders because they are collateralized. As a result, lenders are more willing to charge lower interest rates. Secured loan amounts typically range between $25,000 and $5 million and have terms ranging from 1 to 25 years.
A secured loan requires some form of collateral, such as a personal guarantee or a home, vehicle, equipment, or other valuable assets. If you default on a secured loan or stop making payments altogether, the lender can legally recoup its losses by seizing control of your collateral.
Applying for a secured loan is straightforward and requires basic information about your business. Your loan application will include your personal and business financial statements, income tax returns, profit and loss (P&L) statements, and projected revenues.
Unsecured business loans.
An unsecured business loan does not require any collateral, which reduces the risk for the borrower. As a result, this type of loan will most likely have a higher interest rate than a secured loan. Unsecured loans are popular among small business owners nationwide because they can be obtained relatively quickly, even with a poor credit rating. Unsecured business loan amounts are typically between $3,000 and $250,000 and range from 3 to 24 months.
Some lenders require a personal guarantee for their unsecured loans. As the name implies, a personal guarantee is a legal contract that requires the small business owner to repay the loan if their business cannot do so. Most lenders that require personal guarantees will also include loan interest and any ancillary loan-related fees in the personal guarantee contract. Lastly, it is not uncommon for lenders to place a blanket lien on a business’s assets. All of the business’s assets become collateral if the loan is not repaid.
Short-term business loans.
This type of loan will come in handy if your small business needs immediate funding to fill cash-flow gaps, purchase much-needed supplies and inventory, or jump on a time-sensitive business opportunity. Although short-term loans are faster and more convenient than other loans, you will pay a higher interest rate. That said, the term length is much shorter, usually between 3-18 months, so you will be able to repay the loan much quicker. Moreover, repaying a short-term loan might help boost your credit rating.
Short-term loans range between $3,000 and $250,000, and applying is easy. You will need to provide essential information about you and your business, and collateral is rarely required.
The SBA’s 7(a) loan program is ideal if you need a loan to buy an existing business, refinance debt, or make a significant capital equipment investment or technology refresh. SBA 7(a) loan amounts range between $125,000 and $5 million, and the repayment periods are 5 to 25 years. The SBA does not provide loans; it guarantees them. To apply for an SBA loan, you must locate a participating SBA lender in your city or town that offers 7(a) loans.
If you are considering an SBA loan, you will need to complete a loan package that includes several business-related documents and your application. SBA loan applications go through multiple steps before being approved. After gathering your business’s records and completing your application, you must send them to your lender for review and underwriting.
Upon approval, you will receive a loan commitment letter. If you like what you see and decide to move forward, your lender will finalize everything and close your loan.
Your small business will require more money to cover any number of business-related expenses or emergencies. Therefore, it is essential to do your research and pick the best business loan for your particular needs and budget when that time comes.
Balboa Capital, a Division of Ameris Bank, is not affiliated with nor endorses the Small Business Administration. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.