If you need a small business loan, you have a seemingly endless number of options to choose from. 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 you work with. Some lenders require solid credit scores, collateral and strong revenues, while other lenders 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 loan option for your small business… one that saves you time so you can focus on running your company.
Secured business loans.
Banks, SBA-approved lenders and other types of lenders offer secured business loans which, in most cases, have lower interest rates (fixed or variable) and lengthier repayment terms. 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 business loan amounts typically range between $25,000 and $5 million and have terms ranging from 1 to 25 years.
A secured business loan requires some form of collateral, such as a personal guarantee or a home, vehicle, business equipment or other valuable asset. In the event that you default on a secured business loan, or stop making payments altogether, the lender can legally recoup its losses by seizing control of your collateral.
Applying for a secured business loan is straightforward and requires basic information about your business. Your loan application will need to include things like your personal and business financial statements, personal and business income tax returns, profit and loss (P&L) statements, and projected revenues, among others.
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 business loan. Unsecured loans are a popular choice among small business owners nationwide because they can be obtained relatively quickly, even with a subpar credit rating. Unsecured business loan amounts typically range between $3,000 and $250,000 and have terms ranging from 3 to 24 months.
Some lenders require a personal guarantee for their unsecured loans. A personal guarantee, like the name implies, is a legal contract that requires the small business owner to repay the loan if their business is not able to 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 company’s assets. This means that all of the company’s assets become collateral in the event that 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 types of loans, you will end up paying 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 can actually help give your credit rating a nice boost.
Short-term business loan amounts range between $3,000 and $250,000 and applying for a short-term loan is easy. You will need to provide essential information about you and your business, and collateral is rarely needed.
The SBA’s 7(a) loan program is ideal if you need a loan to buy an existing business, refinance debt, or make a large 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. In order to apply for an SBA loan, you will need to 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 along with your loan application. SBA loan applications go through multiple steps before being approved. After you gather your company’s documents and complete your loan application, you will need to send it 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.
It goes without saying that your small business will require more money to cover any number of business-related expenses or emergencies. When that time comes, it is important to do your research and pick the best business loan for your particular needs and budget.
The information in this blog post has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, investing or accounting advice. You should consult with your accountant, lawyer or tax advisor before making any business decisions or moving forward with business funding.