How To Choose The Right Business Loan For Your Company

When you’re a small business owner looking at loan options, it’s easy to get overwhelmed. There are so many small business loan products available today. Banks are no longer the only gatekeepers. In addition to loans offered by the Small Business Administration, dozens of alternative lenders have emerged to offer business owners fast loan processing and funding within days. 

So, which business loan is right for your company? That really depends on what you’re going to use it for, how fast you need it, and how soon you are going to pay the money back.

Consider How You’re Going To Use The Loan

Lenders are going to want to know how you plan to use the money anyway. If you can’t present a viable plan for how the money is going to benefit your business and help it grow, then you’re not going to get the money. 

You also need to think about how you’re going to use the money to decide what kind of loan is best for your business. For example, if you need money to buy real estate, expand your business, buy equipment, acquire another company, refinance existing debt, or provide working capital, then Small Business Administration (SBA) loans like the 7(a) loan, the microloan, or the CDC/504 loan might be ideal. Traditional bank loans can also be used for all those functions.

Alternative loan products, like business lines of credit, invoice factoring loan, and merchant cash advances, also have their uses. Invoice factoring and merchant cash advances allow you to borrow money against invoices you’re owed, by selling your outstanding invoices to a factoring company. The company pays you 70 to 90 percent of what the invoices are worth, and you get to keep that money to do as you see fit – the factoring company gets paid when they receive payment on the original invoice from the vendor you did business with. Merchant cash advances allow you to borrow against the volume of your credit card sales, so you’ll be able to repay the loan from your upcoming sales.

Get Money Fast When You Need It

SBA loans and traditional bank loans can be the best small business loans to get for planned changes, if you meet the qualifications and have the time to go through a lengthy application process that includes submitting a lot of paperwork and possibly meeting with a lender or a nonprofit loan facilitator more than once. It can take months for a traditional bank loan or SBA loan application to process. 

If you need money faster, you may want to choose an alternative lender that offers a streamlined digital application process. Many alternative lenders can offer you funding within a few days of submitting your application. They’re good options if you need cash fast to meet daily operating expenses. Options like an invoice factoring loan or a business line of credit might also be more appropriate if your business regularly finds itself short of cash.

Borrow Only What You Need

When you’re applying for a small business loan, it’s understandable to want to ask for as much as you can get but you really shouldn’t borrow more than you need for a specific purpose at your business, whether that purpose is covering operating expenses while you wait for payments to come in, buying new equipment, or expanding to a new location. As previously mentioned, you’re going to need to account for how you’re going to use the loan and how it’s going to strengthen your business. If you’re borrowing a small amount, you may want to try the SBA microloan, which is available in amounts up to $50,000.

Of course, the more you borrow, the more you also have to pay back, which is another good reason to only borrow what you absolutely need. A larger loan is going to have larger payments, and large loan payments can lead to cash flow issues, especially if you’re a company that already has cash flow issues. If you’re using a product like a merchant cash advice or a business line of credit to get your business through periods of low cash flow, then make sure you’re using those products responsibly. It can be easy to accumulate high-interest debt using these kinds of products. 

What business loan product is right for your company? It depends on what you’re going to use the money for, how much you can afford to borrow, and how fast you need the money. Choose your small business loan carefully, so it can help, rather than harm, your business.