Small business loans can help women start and grow their businesses. Here are the most common types of small business loans for women and other business owners:
US Small Business Administration (SBA) loans are offered by a number of SBA-backed banks, online lenders, and other financial institutions. Depending on the type of loan, the amounts available vary from $ 30,000 to $ 5 million, with interest rates varying depending on the type of loan and the lender. Many SBA loans target startups and borrowers in underserved communities, as well as women-owned and minority-owned businesses.
The SBA’s microcredit program helps new businesses get started. The loans are smaller than other SBA loans (up to $ 50,000 only), but they are often easier to qualify for businesses with limited financial records or credit history. Terms vary by lender, but typically extend for up to six years, and interest rates typically vary between 8% and 13%.
A term loan is a traditional loan in which a borrower receives a lump sum of cash that must be repaid over a set period of time (usually three to 24 months). These loans are available from banks, credit unions, and online lenders, but they can also be obtained from peer-to-peer lenders, which allow individual investors to work directly with businesses in need of financing.
Term loans can be limited to certain purposes, such as financing inventory or other large purchases, but they are generally a flexible borrowing option for business owners who need access to a large amount. silver. Typically, term loans are available up to around $ 500,000, with annual percentage rates (APRs) starting at around 9%.
A line of credit is a specific amount of money that a business owner can access based on their needs. If part of the line of credit is prepaid, the borrower can reuse those funds. At the end of the drawdown period (usually up to five years), the repayment period begins and the borrower can no longer access the revolving funds.
Borrowing limits are often between $ 2,000 and $ 250,000, and borrowers must pay an APR of 10% to 99%. In particular, however, interest is only charged on the portion of the line of credit that is actually used, and not on the entire available balance. This makes lines of credit perfect for business owners who prefer to have access to cash when needed rather than all at once.
An alternative to unsecured loans, asset-based financing allows businesses to take out loans backed by valuable collateral, such as accounts receivable, machinery and equipment, inventory, and real estate.
This type of financing presents less risk for lenders because they have the option of repossessing the underlying collateral if the borrower does not make their payments on time. As such, loan terms can be less stringent and interest rates more competitive, making it a good option for business owners with poor credit or limited credit history.
Invoice factoring is a common type of asset-based financing that involves selling a company’s unpaid invoices to a factoring company in exchange for a lump sum of cash, typically between 80% and 90%. of the total amount of the invoice. Purchasing equipment with manufacturer financing and financing inventory directly through a supplier are other popular examples of asset-based financing.
Merchant cash advances
A merchant cash advance (or MCA) is a type of financing that allows business owners to receive a lump sum payment in cash in exchange for a portion of future sales receipts. Rather than making monthly payments like with traditional loans, MCAs are repaid through individual company sales or through daily or weekly automatic clearing house (ACH) payments, usually at an inclusive factor rate. between 1.2 and 1.5.
MCAs are often available from merchant service companies, further simplifying the application, funding, and reimbursement process. For this reason, this type of financing can be a suitable option for businesses with high sales volume.