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Are you a business owner in need of capital for your business? If so, you might be wondering what type of business loan would be best for your business. For instance, would a term loan be a good choice? Would an SBA loan be better? Or should you choose another type of business loan instead?
In this post, we explore the differences between term loans and SBA loans. However, there are many other types of business loans as well. With diligence, you will find the capital you need for your business.
Choose from Multiple Types of Loans
Almost every new business needs a financial boost from time to time, either to get started or when the owner decides it’s time to expand. But when you search into the types of funding that are available to small businesses like yours, you might feel overwhelmed at first. There are so many different choices!
For example, you could apply for accounts receivable financing or asset-based lending. Alternatively, you could choose to apply for a business line of credit, equipment financing or leasing, bridge loans, or multiple others.
When Should You Choose a Term Loan?
Let’s say you see a business opportunity that would allow you to get out in front of your competitors. However, if you were to use the funds currently available in your business, you would jeopardize your company’s cash flow. Therefore, you need a large influx of capital from an outside source. What’s more, you need it quickly, before the opportunity slips away.
So you decide to apply for a term loan. That’s because you understand that with a term loan you receive a lump payment sum up front. Then you pay it back plus interest by making regular payments over a set period of time.
Why Else Might You Choose a Term Loan?
A term loan could be a good idea if you want to give your business more room to grow by making some renovations to your current facility.
Or you might want to take advantage of an auction that’s offering a piece of equipment your business has been needing. A term loan could also come in handy if you need to lower the interest rate on business debt that has gotten out of hand.
Will You Need Collateral?
You might be able to acquire a term loan with no collateral, depending on the lender’s terms. However, some lenders require collateral. This means you’ll need to put up some of your business’s property in order to secure the loan.
When Should You Seek Out an SBA Loan?
On the other hand, if you have larger plans in mind, an SBA loan might suit your purposes better than a term loan would.
The US Small Business Administration offers SBA loans for major investments and improvements for small businesses. For example, you could use an SBA loan to purchase a franchise or to acquire another business.
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You might also use an SBA loan to make capital improvements on your company’s existing property. An SBA loan would also be appropriate if you need to purchase heavy equipment for expanding your operations. You must, however, first check whether you meet the sba loan qualifications, as these federal loans are limited in terms of industry and are dependent on your specific loan repayment ability.
Is an SBA Loan Better Than a Term Loan?
The advantages of an SBA loan over a term loan are that with an SBA loan you can get a larger loan at more competitive interest rates. Additionally, some SBA loans come with generous repayment terms of up to 25 years.
Of course, as with any type of business financing, when you take out an SBA loan you must be prepared to repay with interest the money you have borrowed. So whether it’s a term loan, an SBA loan, or another type of business loan, do your research first and consider your options carefully.
About the Author
Carrol Strain is a Top Rated copywriter on Upwork as well as editor and on-call writer for the Business Opportunities blog.
