Are you thinking of starting your own online business? Or, have one that you need to expand? You will need some funds to make it possible.
Discover some loan options available to small businesses from the SBA and private lenders. Then find tips to help you choose the right loan for you.
SBA Business Loan Options
For online businesses in need of additional funding, SBA loans are often seen as the best option. These specific loans are backed by the U.S. Small Business Administration, which means they offer businesses some of the best rates and terms in the market.
There are three types of SBA loans available:
- Microloans: These average about $13,000 per loan and can only be used to help small businesses start or expand.
- 504 loans: These loans offer businesses fixed-rate financing for major fixed assets that promote business growth and job creation.
- 7(a) loans: These loans provide financial help for small businesses. They can be used to purchase items such as real estate, furniture, and fixtures. Special requirements must be met to qualify for these loans.
Although SBA loans offer many benefits, applying for them and getting approved can be a long process. Each loan will require businesses to meet specific criteria and can only be used for certain purposes. For an online business, a 7(a) loan would probably not be the best option for you, as you will not need to purchase real estate or furniture for your office.
An SBA loan broker can go over the different loan options your online business qualifies for and help you decide if it’s the right option for you.
SBA Loans Aren’t the Only Option
Just like when buying a house or a car, there are many loan options out there. Private lenders for business loans are plenty, and each offers unique benefits. If you choose to go the private route for your business needs, your options may include:
- A line of credit. This type of loan is unique and suitable for businesses whose cash flows ebb and flow throughout the year. Money is available to you, and you only take what you need while leaving what you don’t.
- Working capital loans. These loans appeal to many online retailers because collateral is often not required. Working capital loans offer a way to inject money into your business while you find new ways to bring in revenue.
- Business credit cards. Although not a traditional loan, a credit card allows online businesses to make purchases and pay for them later, just like a personal credit card. Just be careful not to overspend and let your card usage get out of control.
These are just three of the many options available to online businesses looking to start or expand. Whatever your situation, there is a funding option available to you.
How to Choose a Business Loan
Knowing all the different types of loans available for your online business can make the process of applying overwhelming. Which loan is best? What should you look for when choosing a loan provider?
When choosing a loan for your online small business:
- Research yourself first. Take some time to write down what you plan to use your loan for so your banker can help you find one that meets your funding needs. You should also take some time to look at your revenue over the last few years, so you know what you can afford. Finally, look up your credit score before applying.
- Compare loan offers. Once you’ve found a few loan options, take some time to compare them. What are the requirements to get approved for the loan? What is the repayment period? Are there any fees associated with the loan (startup, annual, or otherwise)?
- Check the application fee. Some private lenders may require applicants to pay a fee for their application to be processed. Be prepared for this fee or have an option for another provider if you don’t want to.
- Gather your documents. Before applying for any loan, gather general documents, like tax statements and income earnings. Having all the documents on hand can make the application process much smoother.
- Give yourself time. Taking out a small business loan or any loan is a big commitment. Don’t feel like you need to go with the first loan or vendor you see. Research, find one you trust, and know that this is a process.
Summary
Online businesses are more popular than ever—especially as more people start to shop at home during the pandemic.
Businesses looking to launch or expand may need some cash flow to make it happen. A business loan can help make your dream a reality. Just be sure to do your research and ask for help from lenders to ensure you get the best loan for you and your online business.
Sources:
https://www.sba.gov/funding-programs/loans
https://www.cnbc.com/select/small-business-loan-types/
https://www.business.com/articles/how-to-choose-a-business-loan/
https://www.business.org/finance/loans/how-to-choose-a-business-loan/
