Finance for the Entrepreneur: How to Know When You Need a Loan

Many new entrepreneurs start their business with a little bit of savings and some credit cards. This is not a sustainable plan for growing the business, though. If you find yourself in this situation, it’s time to look into your financing options. In this blog post, we will go over the different types of loans available and how to know when you need one.

Loan Type: Short-term financing options that cover a small amount of money. They are usually repaid in installments over the course of several months or years.

Example: An auto loan is a type of short-term financing. You borrow money to buy a car and then pay it back with installments until the balance is paid in full. | Short-term loans are usually between $500 and $100,000 depending on what you need them for. They can be used to purchase equipment or cover day-to-day expenses.

Loan Type: A long-term loan that covers a large amount of money in order to finance your entire business or expansion project. They are usually repaid over several years, but the exact duration depends on what you use them for and how much you borrow. | Long-term loans can be between $100,000 and millions of dollars depending on which type of financing product you go with. The good news is they have lower interest rates than short-term loans so it’s worth considering if it makes sense for your company.

Loan Type: A loan you get from the government. They are generally for small businesses that need money to grow their company and create new jobs. | Loans from the federal government have low-interest rates, but they do require a lot of paperwork along with proof that your business is stable enough to repay it over time. Most loans must be at least $50,000 in order to qualify so if you’re looking for more than this amount then private lenders may be a better option.

Example: A SBA loan is a type of government loan that helps small businesses get access to the capital they need. | These loans are good for business owners who have trouble getting approved or qualifying for other types of financing options because it’s recommended by lenders, banks, and even angel investors. They are generally issued through local non-profit organizations so you will be working with someone in your area when using this option.

Loan Type: Loans from private sources like friends, family members, or angel investors. | This type of short-term financing can help bridge the gap between starting up your company and being able to secure an SBA loan which makes them worth considering if you don’t qualify yet but really want to fund soon. They can also be used to purchase equipment and other assets for your business.

Example: A personal loan is a type of financing you get from an individual or group of people, not a bank or financial institution. | These short-term loans are generally between $500 and $100,000 depending on what you need them for so they’re great if you only need the money for a few months rather than years at a time like with long-term loans.

Loan Type: A small business line of credit that allows companies to borrow up to $150,000 in funds as needed throughout the year without needing approval every time they want to access it. It’s similar to using your home equity but instead of borrowing against your property, you’re borrowing against your business’s value. | This type of financing is great for companies that need a lot of capital, but not all at once or over the course of several years like with long-term loan options.

Example: A SBA Express Loan is an example of short-term debt financing and one you can get through the Small Business Administration (SBA). It gives small businesses access to $35,000-$250,000 depending on what they want to use it for so if you only need this amount then it may be worth considering as opposed to applying for a large government loan which usually has higher amounts required.

Loan Type: A loan that allows you to borrow money for a short period of time, usually less than one year. | This type of financing option is great if your business needs capital but it’s not something you need all the time or over several years like with other types of loans. They are also used by businesses who may have bad credit or can’t afford high-interest rates because they’re generally offered at lower costs compared to other options available today.

Example: Short-term debt financing lets companies get access to funds quickly which makes them ideal for larger purchases and big projects where timing is essential. You’ll be able to pay back whatever amount you borrowed in 12 months so this works well when working on large-scale initiatives.

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