Comparing Loan Types For Starting A Business


Applying for a business loan is a cinch, right? Many business owners have this mentality when navigating down this path. However, there are several different options available – and it can get overwhelming.

You’ve put a lot of pain, sweat, and tears into your business, so rushing the process is a big no-no. It is essentially akin to shutting your eyes, pointing to a random listing on Zillow, and committing to purchasing the home you selected. That would be silly. 

The important thing is investing time in doing your research before you begin the loan application process. You’ll want to identify what the loan will be utilized and create a strategy for how you’ll manage to pay back borrowed funds. 

To help you get started, here are 6 popular types of business loans to look out for: 

Business Line of Credit

If flexibility is a concern, this type of loan stems from $1,000 to $500,000 and typically has a quick turnaround of one to two weeks. In lieu of receiving a lump sum, a business line of credit is revolving, and you can access the funds when necessary.

Whether the basis for the loan is to add new vehicles to your fleet, increase your human resources staff, open a new branch, add inventory, or purchase equipment, you will only be required to pay interest on the specific amount you withdraw to cover your needs.

To qualify for a business line of credit, lenders typically look for a credit score of 560+, annual revenue of $50,000 or more, and a minimum of half a year in business. 

Small Business Administration (SBA)

SBA is a federal agency focused on assisting small businesses with funding and access to resources. You can apply for amounts ranging from $50,000 all the way up to $5,000,000. SBA loans are known for their infamously slow application process.

They’re also unique because the SBA doesn’t serve as the actual lender. Instead, they act as a middle-man, guaranteeing a substantial portion of funds – reducing lender risk, which makes the possibility of approval much more attractive.

With several types of SBA loans available, make sure to perform your due diligence and align yourself with a loan that best represents your business’s needs. 

Short Term Loan

Need funding ASAP? If your application is approved, you can receive financial backing in as little as 24 hours. Essentially, you can get funding through a short-term loan quicker than binge-watching a show on Netflix.

These loans are built for speed and are usually leveraged in pressing circumstances, like filling a staffing gap, replacing broken equipment, a slump in revenue, or unexpected expenses.

You’ll typically see a maximum of $500,000 for these loans and will be expected to return borrowed funds within a one to three-year time frame.

Business Term Loan 

Need a loan to help expand operations, acquire capital, purchase equipment, or hire new staff? This type of loan has been a top seller for years, as they’re highly reliable and can range anywhere from $5,000 to $2,000,000. These loans have fixed interest rates, meaning your payments will not increase over the lifespan of your loan.

With low-interest rates and repayment terms stemming between 1 and 5 years, this loan comes with incredible transparency and is not too stressful paying off, unlike some other loan options. 

Merchant Cash Advance

This type of loan requires you to borrow funds against your future earnings in order to secure the financing you require. Once your application is approved, you’ll receive the fund agreed upon, and you can begin repaying the loan immediately. This process is done by setting aside a percentage of your daily credit card deposits, which will be withheld and paid to the lender.

Similar to short term loans, you can expect a swift delivery of funds for anywhere between $5,000 and $200,000. Convenience comes with a price, however, as interest rates start around 18%.  

Commercial Mortgage

Whether you’re opening a new office, retail space, restaurant or warehouse, commercial mortgages are perfect for expanding or new-to-the-world businesses.

The funds can be applied towards construction costs for building a location or for purchasing one already in existence. This is an asset-based loan, meaning this financing option will be based on the value of the property and your credit.

Approved amounts range anywhere from $250,000 to $5,000,000 with relatively low-interest rates. In order to qualify for a commercial mortgage, you’ll need to present a clear business plan on where and how you’ll be allocating the borrowed funds. 

Qualifying for a Business Loan

Always keep in mind that lenders will leverage a variety of tools to evaluate your loan qualifications. You may face rejection but that doesn’t mean it reflects your strength, character, or worthiness – so don’t take it personally. Utilize the experience you gained from your denied application to make your next attempt even stronger.

With so many business loan options out there, there’s no need to worry. Speaking with an expert is often beneficial, as they can effectively assess your financing needs and provide you with the best solutions for your needs.

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With my 12 plus years of experience, in Consumer Services, Credit Education, & Credit Restoration, I know that I will be able to assist you in improving your credit rating by providing solutions. Combining my experience, with that of our staff attorneys, will allow my clients to have the peace of mind of knowing that they will be receiving unmatched services. Services at The Phenix Group include removing inaccurate items from credit reports, consumer services, and when necessary, assisting with establishing new lines of credit.