The Different Loans For Different Types Of Small Businesses

No matter your industry, there will be times when you must secure capital. The unique aspects of your business will impact how your loan application is reviewed. Below is an introduction to loans for different types of small businesses.

Different Small Business Loans For Different Business Types

While there are many types of SBA loans, not every financing option is appropriate for every small business. Once you’ve established that you need a loan, the next step is to target your approach to the lenders that understand your industry. This helps you to concentrate on explaining why you need the loan.

Startups

• The SBA 7(a) loan program provides loans from $5,000 to $5 million
• SBA microloans up to $50,000 can be used for working capital or to purchase inventory, equipment, and fixtures
• Online lenders offer unsecured, short-term loans for startups. Visit one of the online lending marketplaces, complete the online form, and wait for lenders to contact you with offers
• If your startup requires the purchase of equipment, consider equipment financing. The equipment or machinery you purchase will serve as collateral

Food Service Businesses

Banks are great if you have a successful foodservice business and are ready to expand. However, most banks are hesitant to lend to a food service startup.

The SBA 504 provides loans to a maximum of $5 million. These are long-term and fixed-rate loans made through Certified Development Companies (CDCs), SBA community-based partners. You can use its funds to renovate a building, purchase furniture and equipment, and cover certain operating expenses.

Some online lenders specialize in the restaurant and foodservice industry. These lenders provide a menu of small business financing. This includes short-term small business loans, business lines of credit, and merchant cash advances.

Hotels And Hospitality Companies

Bank term loans offer the most affordable type of small business financing for hotels and hospitality companies. Loans can be used to purchase real estate, acquire businesses, refinance debt, and so forth. 

• SBA 7(a) small business loans are favorable to the hotel and hospitality industry. Guaranteed loans up to $5 million are processed through SBA-approved lenders
• Asset-based loans are easier on your cash flow than bank and SBA loans. If you have enough equity in your assets, they can be used as collateral to secure a loan or line of credit. Typically, asset-based lenders want to see real estate or accounts receivable as collateral

Retail Businesses

Every small business deals with cash flow issues. However, the retail industry struggles the most under the pressures of seasonal fluctuations and inventory management.

• A business line of credit is the most flexible type of loan. You access the funds when you need them and pay interest only on the amount thaft you withdraw
• A business credit card is an excellent resource when you need to purchase supplies, inventory, equipment, or other expenses
• A merchant cash advance is a good loan option if most of your sales come from credit card sales. No collateral is required and funds are obtained quickly

Service Industries

Service industries, such as law and accounting firms, consultants, hospitals, and biotech companies have an easier time accessing conventional bank loans. Banks offer competitive loan terms and have a good understanding of the service industry. You can apply for long-term loans with competitive interest rates and enjoy maximum flexibility in terms of how you use the funds.

Invoice factoring gives you immediate access to the money your business clients owe you. With invoice factoring, you sell your accounts receivable to a factoring company. In return, you receive up to 90% of what’s owed. After your clients have paid, you’ll receive the balance and pay back the factoring company. Keep in mind that there are fees involved in this process. 

Loans Available To All Businesses

The following small business loans are available to all industries.

• SBA small business loans: This is the most favorable small business lending tool for all industries. SBA-guaranteed loans range from $5,000 to $5 million. It can be used for working capital and business growth. You must meet SBA eligibility requirements
• Standard 7(a): The maximum loan is $5 million, with no collateral on loans less than $25,000
• 7(a) small loan: The maximum loan is $350,000, with no collateral on loans less than $25,000
• SBA microloans: These are small loans, up to $15,000, processed through nonprofit community organizations

• SBA 504 loans: These loans are open to any industry. However, you must demonstrate an average net income of around $5 million or less. These are fixed-rate interest loans that can be used to invest in business growth
• Traditional bank loans: Other than SBA-guaranteed loans, banks offer the most affordable financing terms. It may take longer to secure the financing you need, but a bank loan will use less of your operating budget. Banks require collateral and a well-written business plan. Your financials must show that you can handle the monthly payments
• Business lines of credit: This is revolving credit that can be accessed through your bank or alternative lenders. Your credit score determines the maximum credit available. You pay interest only on what you withdraw. Additionally, most lenders require you to be in business for at least half a year

Conclusion

Securing the capital you need to launch or expand your small business may not be easy. By targeting your approach to lenders, you’re more likely to get your application approved. When time is of the essence, you can’t afford to waste it knocking on the wrong doors.