Small Business Loans

One of the most important things you will need for your business – no matter what it is – is a small business loan. Small business loans allow you access to the capital you need to start or expand your business. The changes you need to make, from equipment to facilities to a Web site overhaul, cost money. Few people have the spare cash just lying around. This is where small business loans come in. You can borrow the money you need in order to fund your startup or your expansion. There are two main types of small business loans: secured and unsecured.

Secured small business loans

Secured small business loans are those that require collateral. If you are buying premises, this means that you might have a mortgage on the building. Or if you own a building, you may take an equity loan to fund your small business ambitions. Other forms of collateral for small business loans include equipment, valuables and even product inventory. The point of collateral is that there is something tangible that the lender can seize and resell to recoup some of the losses if you stop making your loan payments.

Most of the time, secured small business loans come with lower interest rates. Additionally, they are easier to qualify for in some cases – even if your credit is less than perfect. (Although it is important to note that businesses with poor credit will have a difficult time securing any sort of loan in the current economic climate.) Additionally, it is usually easier to get a loan in a larger amount when it is secured with collateral.

Unsecured small business loans

Unsecured small business loans, on the other hand, do not require collateral. You promise to pay, and the lender provides you with the capital you need, based on your word. This is considered desirable in some cases, since it allows you to increase your cash flow without having to put your business’s assets on the line.

With unsecured small business loans, though, you may have to have better credit. Additionally, it may be necessary to settle for less money than you originally wanted. There are lenders that offer unsecured small business loans in the $250,000 to $300,000 range, but they are few and far between. Another thing you should be aware is the fact that unsecured small business loans generally have higher interest rates and may charge more fees.

Shopping around for small business loans

Just like any other service or product you buy, you should shop around for small business loans. Look for good interest rates and terms. Also, find out what sort of fees and points are charged on the small business loans you are considering. And make sure that you choose a lender that is reputable and will work with you to enhance your success. If possible, stay away from subprime small business loans.

Other options for funding your small business

Small business loans are not the only options. There are some other things you can do to get the funding you need for your business:

• Look for investors. If you do not mind sharing your profits out, you might look for investors to provide you with capital for your small business. They put in some money, and expect returns when you make a profit. However, you need to have a solid business plan if you want to attract investment funding.
  
• Invoice factoring. If you are looking to expand your small business, and you have some outstanding invoices for goods and/or services, you might try invoice factoring. This is when you turn the invoices over to a factoring company. They pay you for the invoice, and then they go and collect. This is a creative way of financing additional cash flow. It is also possible to sell invoices outright (but you may not get as much) for larger chunks of capital.
  
• Family and friends. Go to family and friends for loans. However, you should put the loan terms in writing, and make it legal and binding. Offer to pay interest as well. You will probably get better terms from friends and family. However, you need to make sure you pay it back.
  
• Credit cards. You want to be careful with this one, but it is possible to use business credit cards in order to buy what you need. It may not represent a large amount of cash, but you can use business cards to pay bills and buy equipment, freeing up capital for things like payroll.