Expanding a business takes money. Business loans provide financing to grow over time rather than paying large costs upfront. These loans lend higher amounts and offer multi-year repayment plans tailored to business needs.
Each corporation loan has outstanding qualities to weigh. Interest rates can be specified or variable. Payment structures fit business cash flow like interest-only periods, balloon payments, or deferred principal. Terms range from months to over 25 years for real estate investments. Fees vary by lender from 1-5% of the loan.
Do a thorough investigation to find the best financing match. Compare rate quotes from multiple lenders. And get preapproved before shopping around and timing applications for optimal leverage.
Top 4 types of corporate loans
Several loan types can provide financing to help small businesses launch and grow. Understanding the difference in options is vital to picking the best match.
Here are the most common business loans available:
| Loan Type | Typical Eligibility Criteria | Credit Score Requirement |
| Business Loans | 2+ years in business, steady revenue | 700+ |
| Small Business Loans | 1+ years in business, consistent revenue | 650+ |
| Start-up Business Loans | Business plan, no minimum operation time, personal credit | 600+ |
| Business Loan for Bad Credit | Less than perfect credit, might require collateral | Varies, sometimes 500+ |
Small Business Loans
One route is SBA small business loans. The SBA, or Small Business Association, is a government agency supporting entrepreneurs. They partner with various banks to provide low-cost financing.
The benefits of SBA loans are that they offer lower interest rates compared to alternatives, making debt service more affordable for business owners. They may also provide longer repayment terms, up to 10 years or more. A more comprehensive range of uses is also permitted, from working capital to equipment purchases.
Traditional Bank Loans
Traditional bank loans are also commonly used to fund small companies. From national banks to regional credit unions, many lenders issue commercial loans.
Bank loan rates may be higher compared to SBA options, with shorter 3-5-year payback schedules. However, credit standards can be more flexible in some instances. This allows funding for startups or niche industries potentially denied elsewhere.
Start-up Business Loans
| Criteria | Detail |
| Credit Score Requirement | 600+ |
| Typical Interest Rates | Varies, often higher |
| Collateral Required | May be required |
| Usage Restrictions | Usually for start-up costs |
| Approval Time | Varies by lender |
| Lender Types | Specialty lenders, crowdfunding |
Launching a start-up requires capital. Beyond personal savings, entrepreneurs can raise money through a couple of start-up business loans, including bootstrapping and venture capital funding.
Bootstrapping
Bootstrapping means self-funding your venture. This approach builds the business step-by-step as internal cash flows allow. Tactics like reinvesting profits back in, slow office growth, and founder sacrifices help preserve cash.
Challenges you may face include slow expansion and limited funding for significant expenses like manufacturing. Some founders enjoy the scrappy nature, while others find it restricting.
Venture Capital Investment
Venture capital firms provide equity funding to start-ups perceived as high-growth. VCs typically invest other people’s money, injecting larger sums like millions. They gain partial company ownership and often board seats.
This cash infusion fuels faster expansion. In exchange, founders cede some control and company upside. VCs also impose growth pressure and exit timeline requirements. An IPO or company sale within 3-5 years is common.
Business Loans for Bad Credit
| Criteria | Detail |
| Credit Score Requirement | Varies, sometimes as low as 500 |
| Typical Interest Rates | Typically higher rates |
| Collateral Required | Often required |
| Usage Restrictions | Fewer restrictions, but strategic use advised |
| Approval Time | 1-4 weeks |
| Lender Types | Alternative lenders, online platforms |
What if you want to start a business but have bad credit? There are still a couple of business loans for bad credit you can apply for:
Secured Loans
Secured loans require collateral. This is a property like real estate or equipment the lender can seize if you don’t pay. By securing the debt, lenders reduce their risk. Even people with low scores may qualify for these.
Secured loans may offer lower rates. The downside is failing your collateral if you default. Make sure your business venture or revenue stream will let you repay the loan. Then, you get to keep both your collateral and your business.
Merchant Cash Advances
This option provides money upfront based on a percent of future credit card sales. Daily card income would then get split with the lender until the advance is paid off.
Because payments come from sales, the risk for lenders is lower. Thus bad credit is sometimes accepted. Approval can be quick too.
Business Credit Lines
Business credit lines provide revolving access to capital for companies. They work similarly to personal credit cards. Below, we explain the key features of this financing choice.
Flexible Revolving Credit
Like a credit card, business lines give a maximum limit that can be tapped as needed. Funds get “revolved” or reused as you make payments. Interest charges apply only to outstanding monthly balances, not the full limit.
Companies use credit lines to bridge money flow openings or fund growth opportunities. Having funds available beats waiting on traditional loan approvals. Since no set payoff date exists, flexibility is high.
Conclusion
Comprehend why you desire a loan and how much you seek to borrow. Make a budget for costs and expenses. See how much cash you can pay each month. Then, find loans that match well. If big surprises come later, a loan that worked before may now cause money struggles. Being clear upfront prevents problems down the road.
Every loan brings with its own create of rules. This legal fine print is important to understand before signing. Ask the lender questions if unsure. Key things to review are the interest rate, fees, and penalties. Also, check the loan term, payment due dates, and the total amount you’ll repay over the full year.
Loans vary a lot, so shop around for your best match. Weigh options based on your situation, financial life, and budget. A loan with low rates but stiff penalties may not be a good pick if money is tight. One with higher rates yet more flexibility could work better. Make an informed choice that fits your needs while knowing all the details upfront.
