3 Small Business Debt Options to Secure Finances
If you want to run a small business, you will need cash. You’ll want to look at the different fundraising options and see which one makes the most sense. In many cases, a small business loan may be your best option. Here you will find Credello’s recommendations for personal loans for your business.
1. Commercial line of credit
A commercial line of credit is a loan you apply for from a bank or credit union. Maybe your business already exists and you need a cash injection to help keep it running. Or maybe you haven’t started your business yet and need the money to get it off the ground.
In the first scenario, you will need to show the lending entity documentation that makes them aware of your finances. In the second case, when you have not started your business yet, you will need to create a detailed business plan to show to the lender.
If the bank or credit union gives you the line of credit, it will be for a fixed amount. You can use as much of this amount as you want by writing checks against it. Like a credit card, you will owe the lender interest on the money you use on this line of credit, unless you pay it back promptly.
2. Commercial real estate loans
A commercial real estate loan, or CRE loan, allows you to use an existing commercial property you own, such as an office building, retail store or hotel, and take a lien on its value. Usually a bank or credit union will send an appraiser to examine a property and determine its value. Then, if the lender approves the loan, they will give you an amount based on this assessment.
You can generally use the money from this loan for anything business related. The contract may stipulate certain things that you can and cannot spend money on.
3. Term loan
Term loans are common loans for small businesses. To qualify, your lender will typically review your credit rating, business history, or business plan if the business does not yet exist.
If the lender finds your business or idea viable and believes you are a good candidate to repay them based on your credit rating, they will offer you an offer which you can accept if you agree to the terms. You will then make monthly installments to the lender for an agreed amount plus interest.
Many business owners find this an attractive type of loan because you often don’t need to post anything as collateral to secure it. Plus, the way the language of these loans is written usually gives you a lot of flexibility in what you can do with the money.
Several small business loan options exist
If you are going to start a small business or already have one and need money, several loan options exist. The key is to choose the one that makes sense based on your situation.
Term loans are one of the most common varieties. You tell a bank or credit union about your existing business or show them a business plan, and they can give you a loan that you repay in monthly installments with an agreed-upon interest rate. A commercial property loan allows you to apply for financial support using the appraised value of a commercial property as collateral.
Commercial lines of credit work like credit cards; The lender gives you a fixed amount and you can use as much as you want for business purposes. You will pay interest on any amount you use on the line of credit if you carry over the balance from one payment period to another.