If you’re a small business owner and you’d like to borrow money to expand your business, purchase additional equipment or inventory, or for any other reason, you may be wondering what options you have. Here are a few of the most common loan options for small business owners.
There are a lot of different types of term loans, but they usually can be broken into two main categories – unsecured loans and secured loans.
- Unsecured loans – With this type of loan, no collateral is required by the bank providing you with your loan. This is riskier for the lender, so you may pay a higher interest rate, or you may need very good credit and financials to qualify.
- Secured loans – With this type of loan, you put up business assets or personal assets as collateral. If you do not repay the loan, the bank can seize these assets. This reduces the lender’s risk but increases your risk. However, secured loans are usually easier to get if you have a lower credit score.
Beyond this, term loans tend to work in the same way. You take out a lump sum – say, $50,000 – and repay the loan along with interest in equal monthly installments. Loan terms can be as short as 12 months or as long as 10 years or more, depending on the loan.
Lines of Credit
This is sort of like a combination of a term loan and a credit card. In this method of lending, a bank provides you with a certain amount of credit – say, $10,000. You can borrow as much (or as little) of that money as you want.
If, for example, you take out $3,000, you’ll only pay interest on this amount, rather than your full $10,000 credit limit. This type of borrowing is great if you sometimes need some extra cash, but don’t need a term loan.
Merchant Cash Advance
A Merchant Cash Advance (MCA) is not technically a loan at all, but it serves a similar purpose. With an MCA, the lender purchases a percentage of your future receivables at a discount in exchange for a lump sum advance.
For example, the lender may advance you $50,000. Then, you pay the MCA company 15% of your daily sales until the advance and any related fees or charges have been repaid.
The unique benefit of this option is that your repayment is tied to your business performance. If sales are strong, you’ll be able to repay more of your MCA, but if things slow down, you’ll still only pay 15% of your sales as in the above example. You won’t have the burden of a large, fixed monthly payment.
Explore Your Options Now with Progressive Business Capital
At Progressive Business Capital, we help small business owners explore funding options via MCAs and traditional loans. Our service guides merchants through the process of getting the working capital they need to succeed. Contact us online or call at (800) 508-4532 to get started now.