How to Get a Small Business Loan in 2021

In the world of business, it takes money to make money. Having extra cash as a small business can really come in handy for many reasons. Whether you need the cash to start the business or need some temporary funds to cover payroll, a small business loan can help get the job done. In this article we will discuss how to get a small business loan and what alternative options are available.

Where Small Business Loans are Available

If you are not sure where to start looking for a small business loan, there are several options to choose from. You can find them at banks, credit unions, online lenders, or alternative lenders. Each of these sources might have different requirements.

Banks and credit unions

You can look at your personal bank for some small business loan options and outside your usual bank or credit union as well. If you are in good standing with your bank that can benefit you when you apply for a small business loan. Banks and credit unions have larger and more established businesses, but it does not mean small businesses cannot fit into this category. If the bank or credit union has loans backed by the Small Business Administration (SBA). These are known as SBA loans and are less risky for the lender making it easier for a small business to take out a loan.

Online and alternative lenders

If you do not want to go the traditional route to getting funding for your business, you can now choose online lenders and alternative lenders, such as peer-to-peer lenders. They offer similar products as banks and credit unions, but they do it online.

A lot of online lenders offer more flexibility than brick-and-mortar banks, which can be a good fit when starting a new business. Peer-to-peer small business lenders can be found online where you can connect with investors looking to support small businesses. Peer-to-peer lending typically has less stringent criteria than when working with a big bank or credit union, but because the risk level can be high for lenders, you may have higher interest rates than you would find with a traditional business loan.

Types of Small Business Loans

There are several types of small business loans that might be available to you. Each has their own unique benefits and downsides so you will need to think carefully about which one is going to be the best for your business.

Business line of credit

A business line of credit works similarly to a credit card and you can use it to make purchases for your business such as stocking up on inventory or paying for ads. There is a maximum amount that you can borrow and what is helpful is that if you do not borrow the full amount, you will not pay interest on any money not borrowed.

Business term loan

A term loan provides borrowers with a lump sum and a fixed term and repayment amount. Payment will include both interest and principal payments.

Invoice financing

If your business struggles with cash flow from waiting for invoices to be paid, invoice financing can help by allowing you to sell your unpaid invoices to a lender for a discounted rate.

Merchant cash advance

A merchant cash advance providers a borrower with a lump sum that is based on their predicted future sales. This form of financing typically comes with high fees and may take a cut of your sales on a daily or weekly basis.

Alternatives to Small Business Loans

If a small business loan does not feel like it is the right fit for you, there are other options to choose from.

Alternative online financing can help approved business owners with the capital they need to support their business by paying bills, overcoming cash flow gaps, and more. Business credit cards are another option that offers small business owners with low or no-interest loan of sorts. Many card issuers offer six months without interest. A business credit card is only a good financing option if you are able to pay off your purchases before the introductory rate ends and a higher interest rate kicks in. The Paycheck Protection Program (PPP) is a loan provided by the SBA to help business owners keep workers employed during the pandemic as well.