TRUiC explains the different types of commercial loans

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Business loans can play a central role in: a) exploiting long-term business growth opportunities, b) resolving disputes or cash flow issues that arise, and c) increasing the overall value of the business. ‘a company.

That said, the wide range of business loans available means that, depending on the specifics and structure of your business, some types of business loans may be more suitable than others.

The reasons for getting a business loan can also vary widely, from wanting to buy or upgrade a business’s equipment to investing in real estate.

The Really Useful Information Company (TRUiC) recently produced an online guide that accurately and thoroughly delineates the variety of business loans that businesses are currently able to use.

SBA 7 (a) Small Business Loans

SBA 7 (a) small business loans are loans legally guaranteed by the Small Business Administration.

Obtaining such loans usually involves liaising with potential lenders who can then assess a company’s financial position and determine whether it meets the relatively strict prerequisites for obtaining an SBA 7 (a).

As a general rule, SBA 7 (a) loans tend to be perfect for small business owners and start-ups who may not have the required credit rating to acquire sufficient investment capital through investment. other means or financial investors.

TRUiC briefly outlined the legal requirements that businesses will need to meet if they wish to obtain SBA 7 (a) loans, these include (but are not limited to) businesses that:

  • Operate for profit (non-profit organizations are not eligible).
  • Operate in the United States (or its territories).
  • Meet the definition of “small business” as defined by the Small Business Administration.
  • Have already achieved a high level of invested equity.
  • Demonstrate an adequate need for a commercial loan within the framework of their specificities.

Business owners can also choose to plan their business financing strategy with the help of the Obsidian Bear Funding course.

Working capital loans

Working capital loans are mainly granted through conventional banks; Unlike SBA 7 (a) loans, commercial working capital loans can be made for virtually any business purpose. One of the biggest advantages of working capital loans according to TRUiC is that business owners are only required to pay interest on the capital they use pragmatically, not on the total amount borrowed.

This means that business owners (overall) can maintain a much higher degree of security, predictability, and flexibility.

Additional benefits include:

  • The ability to borrow and repay principal extremely quickly and without a lot of fun.
  • The ability to maintain the same ownership structure of the business; there is no obligation to sell a share of a business owner’s company in exchange for funds.
  • The ability to avoid collateral damage, as business owners do not have to personally “gamble” on their own assets in the event of insolvency.

Microcredits

Microcredits typically involve small business loans ranging from US $ 5,000 to US $ 50,000; this means that (usually) business owners interested in acquiring microloans usually rely on non-profit organizations or government agencies rather than conventional banks which rarely provide such loans to “small” businesses. .

The Small Business Administration (briefly introduced above) offers microloans through a relatively straightforward process, involving a very low number of legal preconditions. The most important are that: a) lenders do not use the amount of the acquired microcredit to refinance other existing debts they own, and b) they do not use the microcredit to purchase real estate.

Commercial term loans

As TRUiC explains in its guide, a business term loan is virtually the epitome of a “classic” business lending process. These are companies that borrow capital from an established financial institution, such as a bank or venture capital firm, which is fully returned and repaid over several different time intervals over a long-term period. previously agreed and defined.

Business term loans can offer a plethora of benefits for small business owners, including increased business credit score protection, relatively quick financing, and no additional debt on the balance sheet.

One last take

The above list (which is based on TRUiC’s in-depth analysis) provides a great, primitive description of the majority of the most common types of business loans in 2021.

With that said, business owners should always do their own market research before applying for a business loan, as there is a plethora of things to consider which will be based on the specific industry and business entity structure. from a company.

TRUiC’s business loan calculator can ensure that start-up businesses are fully prepared to take the necessary steps to repay their loans adequately and on time in the future by providing them with all the relevant information they will need.

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