Entrepreneurs are responsible for some of the most effective forward strides in our world. But they usually need money to research and develop their ideas. That's where small business startup loans come in handy. But what types of loans are available to get a new business going? There are two main categories of business loans: short-term and long-term.
Short-term loans are designed to last no more than one year. The borrower must pay back the full amount within that time period. Businesses that benefit from this type of loan are generally seasonal in nature. For example, a holiday store that is open only during November and December might use a short-term loan to buy Thanksgiving and Christmas themed inventory. The store would pay back the loan using receipts from their seasonal sales, completing the pay-off within a few months of closing the store.
Long-term loans are designed to last for one year or longer. The borrower may need this type of small business startup loan in order to purchase equipment. Or they may use it to purchase land on which to build their auto repair shop. Because the items they are purchasing may be expensive and probably depreciable over a long period of time, they want to take more time to repay the loan.
Within each of these categories, there are many types of small business startup loans available to new business owners. Here are just a few of the most common ones.
Secured loans and unsecured loans are available to provide startup funds. The former requires some kind of collateral such as the equipment that is being purchased or the real estate used by the business. The latter is usually based on a borrower's credit worthiness and does not require any type of physical collateral.
Small business loans are available through banks and other lending institutions but they ease the amount of risk a lender takes in issuing them because they are guaranteed by the United States Government. This guarantee comes through the Small Business Administration (SBA), which has approval regulations over and above what the lender requires. Still, the SBA is often the best source of loans for a new business.
Lines of credit are similar to unsecured loans in that they do not require collateral from the borrower. Instead, they are based on the existing worth of the borrower and his or her credit history. Someone who has an established relationship with a bank-and a healthy bank account or two-may find that securing a small business startup loan through a line of credit requires little more than an application. Others will find that such a loan is not available to them due to their lack of credit history and personal funds. These entrepreneurs will have to pursue different financing methods.
Equipment financing loans are designed specifically to provide a new business with the equipment it needs to get up and running. For example a licensed plumber who has worked for big service companies for many years may decide to it's time to strike out on his own. He has the license, the experience, and possibly even a client list. All he may need is a sewer machine and a service truck. A bank would find this type of entrepreneur ideal because the loan will be based on-and secured by-the equipment.
So there are many options available to the new business owner. From the SBA to corporate credit, all he or she needs to do is start looking for the money.
Corporate Credit Concepts specializes in Small Business Startup Loans. For more information about Small Business Startup Loans and how it might benefit your business, please CLICK HERE for a free phone consultation.