Choosing a Business Loan Type When you're in the market for business financing, determining what kind of loan you can qualify for is the first step.
By Chris Penttila •
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Q: Can I get a business loan? What kind should I apply for?
A: Most entrepreneurs need to borrow money at some point. The good news is, there are many different loan programs. Unfortunately, that's also the bad news. In other words, the money's out there, but it can be confusing to decide which small business loans to apply for, especially because many loans fund specific things. Here's a quick breakdown of some common loan types.
SBA loans: The SBA backs various types of small-business loans made through local banks and agencies. These loans can be used to buy equipment, inventory, furniture, supplies and more. For information on SBA-backed loans, visit www.sba.gov/financing/sbaloan/snapshot.html.
Line-of-credit loans: These short-term loans let you access a specified amount of money that's deposited into your business checking account on an as-needed basis. You pay interest on the amount that's loaned to you. Line-of-credit loans can be used to buy inventory and pay operating costs for working capital, among other things, but not to buy real estate or equipment.
Revolving lines of credit: When a lender offers a certain amount of money to a borrower and allows the same amount to be borrowed again upon repayment, it's a revolving line of credit.
Loans from friends and family: Money borrowed from friends and family can come with the best low-interest repayment plan you'll ever get. Borrowing from loved ones, however, carries risk. Set up a repayment schedule in writing, and stick to it so Thanksgiving dinner doesn't become a family battleground.
Angel investment: Of course, most family members won't eagerly write you a check for $250,000 to fund your startup. This is where an angel investor comes in, particularly between the first and second years of your company's existence. Angel investors, however, typically demand equity, a high return on investment and a well-defined five-year plan in return.
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