5 Types of Commercial Loans You Should Consider for Your Startup

Entrepreneurs shy away from starting new businesses because they can’t get a loan from a bank. They have trouble locking down investors. And, they don’t have enough capital on hand to self-fund their ventures.

Let’s face it. Startups come with financial challenges. But that shouldn’t be a reason to forgo your plans to start a business. Consider the types of commercial loans available to entrepreneurs.

There are ways to fund your new business. Take a look at 5 types of business loans you should consider for your startup.

1. Types of Commercial Loans: Business Line of Credit

A business line of credit offers flexible borrowing options. Borrow up to $1 million dollars and only pay interest on the fund you use.

This loan option functions like a credit card. You can borrow up to the limit of the loan and reuse the funds at will as long as you make your payments on time.

As a courtesy, some lenders allow early payoff of the balance to help you save on the interest.

There are two types of business LOCs:

Secured Business LOC: To secure this type of line of credit, businesses must pledge collateral. Lenders accept deposits, equipment, accounts receivable, cash deposits, or inventory. If you fail to repay the loan, the lender will seize the collateral and liquidate it to pay off the balance.

Unsecured Business LOC: Collateral is not required for this type of LOC. But, due to the increased risk to the lender, stricter credit guidelines apply. Interest rates are higher as well.

Both options provide an open line of revenue to use whenever you need to.

2. Small Business Administration Startup Loan

Another commercial finance option is the SBA startup loan. The United States SBA offers funds to people whose business will make a financial impact on their community.

Through a microloan, you get access to up to $50,000 towards your new business. The SBA’s Pilot Loan programs allow up to $250,000. Community Development Corporations step in as lenders to assist with the funding process.

Prerequisites for these loans include:

  • Nature, Location, and size of the business
  • The owner’s ability to repay
  • A sound business plan.

The plus? Bad credit does not prohibit you from qualifying for an SBA loan.

3. Equipment and Vehicle Loans

Equipment loans help your finance new or used equipment based on your business needs. The purchase price of the equipment determines the amount of financing.

With these types of loans, you can buy computers, vehicles, and machinery.

The lending process is simple. Some lenders fund within days. Before applying, assess your credit and get an equipment quote.

4. Construction Loans

A construction loan is a short-term commercial option used to finance development projects. The loan amount helps pay for materials, labor, and other costs of the project.

These loans come with higher interest rates. As well, some lenders ask for a small down payment to secure the loan. They’ll also ask you to provide the Blue Book–a complete list of construction details.

5. Term Loans

If you’re looking to get a lump of funds to suit the overall needs of your business, considers term loans.

Term loans are traditional loans with fixed interest rates and set terms. You can borrow as little as $25,000 or as much as $500,000.

The payments are lower and you don’t have to pay back the loan almost right away, as with short-term loans. Lenders off more leeway.

Try a Commercial Loan

Don’t give up on starting that new business. Financial options are available. Different types of commercial loans make it easier for you to launch your startup. Consider your options and consult with lenders about your new project.

Learn more about financing. Take a look at our personal finance conversations for more tips and suggestions.