Small businesses are the cornerstone of America’s economy and to keep them running efficiently, many business owners rely on business loans. We love business loans because they provide a plethora of options with various benefits to suit almost any business need.
1. Business Loans Feed Our Economy
We are fortunate to still have many small businesses fuel our US economy despite the presence of so many big conglomerates. Many folks are acknowledging this by “shopping local” or taking part in “Small Business Saturday” which was created by American Express to unite small businesses. Therefore, business loans are imperative to allow these small businesses to thrive, grow, scale, or expand. Simply put, small businesses are the powerhouse of our economy and capital is the fuel that runs these powerhouses.
2. The Variety Of Business Loans Available
So many loans, so little time! There are so many business loan options available, which is great because business owners can choose the exact loan that is ideal for their needs. This is important because it can save business owners quite a bit of money when they choose wisely. The 4 most popular business loans are term loans, SBA loans, equipment financing, and a line of credit.
A term loan is most commonly used in the commercial market to make a business investment, such as an expansion or an acquisition. Term loans generally have monthly or quarterly repayment schedules with a fixed interest rate.
There are a variety of SBA loans that can cater to a business’s individual needs: Microloans, Real Estate & Equipment Loan: CDC/504, Disaster Loans, and the most common 7(a) Loan Program, which offers financial assistance to businesses with special requirements.
Equipment loans may be easier to obtain because a borrower may be able to use both the new equipment and prospective income generated from the new equipment as the collateral for the loan. However, it is important to know the lifespan of the equipment beforehand because the loan term should be the same as the expected lifespan of the new equipment.
Lines of Credit:
A line of credit with a pre-determined credit limit is a great option for a business that needs short-term working capital. The advantage is the flexibility, which allows borrowers to spend the amount they need and when they need it. This saves borrowers money on paying interest on the entire credit limit. A borrower can also adjust the repayment schedule as needed based on budget or cash flow.
3. Why We Love The SBA Loan Programs
The SBA provides small businesses with a number of financial assistance programs specifically designed to help with debt financing via guaranteed loans, equity financing, venture capital programs, and surety bonds or bond guarantees.
Guaranteed Loan Programs (Debt Financing):
The SBA does not lend to small businesses directly. Instead, it sets the guidelines for loans which are funded by its partners (lenders, community development organizations, and micro-lending institutions). The loans are attractive to the partners because the SBA guarantees the loans, reducing the payback risk. However, the SBA guaranteed loans are not available to all small business owners. They are reserved for borrowers who do not have access to alternative financing with reasonable terms.
Venture Capital Program:
The SBA offers a public-private investment partnership, the Small Business Investment Company (SBIC) Program, which was created to make growth capital readily available to small businesses. The SBA uses qualified private investment funds and does not directly invest into small businesses. The SBA licenses the investment funds and supplements the capital raised from private investors granting access to low-cost and guaranteed debt.
The SBA created the Surety Bond Guarantee (SBG) Program to enable small business contractors to obtain surety bonds when they cannot qualify through traditional commercial channels. Surety bonds are a three-party agreement among a borrower, contractor, and project manager. The agreement binds the contractor to the terms, and if the contractor is unable to complete the contract successfully, then the surety assumes the contractor’s responsibilities to complete the project. The SBA can guarantee bonds up to $10 million for some contracts.
4. Small Business Loans Encourage Technology Adoption
Technology is dynamic and access to it can make or break a small business. The right technology tools can offer a small business significant improvements in efficiency, which can save both time and money. Technology can also make new ideas become a quick reality, which can increase growth, profits, and users. Thus, small business loans play a critical part in helping small business owners obtain the necessary technology tools to thrive in a sea of small businesses.
5. The Application Process Can Be A Cinch
Small business loans are available through many different channels such as traditional banks, online lenders, and alternative lenders. The traditional bank can be tough because you will need to prepare an application and all of the required paperwork ahead of time, and then you will need to actually go into the bank. To save time, we suggest applying online. This is the easiest and quickest way to apply for a loan. However, not all online lending websites are created equal. We do not recommend using a website that requires personal information upfront, especially a social security number or bank account number. We suggest borrowers use Magilla Loans to start their search to shop and compare loans from real lenders. This can be advantageous to learn what loan rates are currently available and what dollar amount a lender will loan based on the borrower’s criteria. Lastly, Magilla does not collect any private information so borrowers can shop loans anonymously.