3 Popular Business Loans for Beginners

You’ve got a killer idea for a new business. Perhaps you’re a young restaurateur, an aspiring brewmaster or an up-and-coming landscape architect. You’ve got the experience, the product, the passion and the vision. But, being able to hang out that OPEN sign requires one more major element – money. Let’s talk about three options for business loans and help you make a little more sense out of the whole thing.

SBA Business Loans

The Small Business Administration has been around since 1953. It was created by Congress to aid, counsel, assist and protect the interests of small business concerns. They offer a variety of loans. Eligibility requirements are not complicated and are based on specific aspects of your business and its principals. To start a conversation with the SBA you’ll need to:

  • Be a small business as defined by SBA
  • Be in business as a for profit compnay
  • Be engaged in, or propose to do business in, the United States or its possessions
  • Have reasonable invested equity
  • Use alternative financial resources, including personal assets, before seeking financial assistance
  • Be able to demonstrate a need for the loan proceeds
  • Use the funds for a sound business purpose
  • Not be delinquent on any existing debt obligations to the U.S. government

Alternative Loans

This second option is the other answer to pursuing a more traditional style, bank loan (which we’ll discuss in Option 3 below). Alternative loans give you both flexibility and control by allowing you to select just the right product, at the right time and in the right amount(s) for your particular needs. Here are a few very popular options:

 

Peer-To-Peer Loans

Peer-to-peer lending (P2P) is the practice of lending money to individuals or businesses through online services that match lenders directly with borrowers. Since peer-to-peer lending companies operate entirely online, they can run with lower overhead and provide the service more cheaply than traditional financial institutions. As a result, lenders often earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates, even after the P2P lending company has taken a fee for providing the match-making platform and credit checking the borrower.

 

Borrow from family or friends

Family and friends who believe in what you’re doing may want to back you financially. Just be sure to put your business hat on and have an understanding in writing – Yes, a contract or letter of agreement. This is the time to be clear and specific about what you expect to get out of it and what they get in return. Avoid misunderstandings that can hurt a relationship down the road.

 

Angel investors and venture capitalists

Venture capital generally comes from a company or firm, whereas angel investors are usually wealthy individuals acting on their own. With both AIs and VCs, it’s important to establish upfront, with a contract, how much control they will have in the company.

 

And there are more

Inventory loans, merchant cash advances, temporary cashflow loans, small business loans for women and minorities – all additonal options that make a conversation with a funding broker, credit union or bank worthwhile. The point here is that you have a lot of solutions available, which of course means more freedom of choice and customizability for you.

Traditional Bank Loans

Our third option takes you the traditional route. The good news is that bank loans are definitely the aforementioned – traditional. They have been around for hundreds, if not thousands, of years. With banks, small business loans are usually unsecured loans, meaning that no collateral is needed. The amount you can borrow is fairly generous and typically ranges from $10,000. to $100,00. The funds are almost always given in a one lump sum. The terms are typically for 2 to 5 years. Your interest rate will be determined by a combination of the amount you want to borrow and your credit history.

Like with most loans you can use the funds for any business related expense(s) you want, from making improvements to your brick and mortar location to buying new equipment or furniture to expanding your product line.

And With That You’re Ready

OK. Now you’re armed and ready to move forward with more confidence. Go have a conversation with an online lender, a credit union or a bank. Maybe all three. Get funded and get your dreams moving. Hang out that OPEN sign. Start making the world’s best hamburger, or launch a new line of clothing or whatever it is you plan on doing to make the world a better place.