Your big dream of becoming a small business owner is finally coming to fruition. It’s an empowering feeling to take the first step in paving your path to success, and money shouldn’t hinder you from reaching your professional goals.
Luckily, like banks and other lenders, credit unions can help you grow your business without the financial stress. But before you apply for your business loan, it’s good to know the requirements, terms and limitations that come with each option, so you can pick the best benefits for your business. Here’s a breakdown of business loans you should consider applying for from your local credit union.
One of the most common types of loans are known as installment loans. Also known as a term loan, installment loans follow a very linear process in the way money is lent and paid back. The credit union simply lends a specific lump of money and the borrower pays back in regular payments or installments on a scheduled basis. This is typically done in the form of monthly payments on a set day each month.
Installment loans vary on rates and terms but the smaller the loan the quicker it can be paid off and vise versa. As far as interest rates, these loans vary and can depend on your creditworthiness. And if you’re looking for a loan higher than $50,000, installment loans are a great option for your small business. These loans are great for large purchases including long-term equipment for your business or personal assets like real estate.
If you’re coming in with a strong credit history and an already established business, then a Small Business Administration loan can be the right option for you. A popular choice for their low rates and favorable terms, SBA loans are a top pick for many small business owners. But unlike installment loans, the SBA does not lend directly to business owners. Instead, they lend to intermediary lenders (such as credit unions) and can guarantee up 85% of each loan by the government, making it less risky for credit unions to loan money to small businesses.
While the application process for an SBA loan can be tedious, it’s well worth receiving some of the most competitive interest rates on the market. Credit unions want your small business to succeed, and SBA programs can help you do just that. These loans allow you to choose from several programs including the 7(a) program, which provides small businesses up to $5 million for almost any business expense. Be sure to check with your credit union for types of loans and requirements, as they may vary.
Any business owner can attest to the fact that business loans are not the easiest to obtain, especially for startups. Without a history of solid financial documentation available, lenders find it risky to approve loans to up-and-coming businesses. But whether you’ve been operating for a few months or you haven’t had your grand opening yet, there are startup loans available for you.
Startup loans come in all shapes and sizes, but credit unions can help you get up and running with a variety of options. While some look to SBA loans for their qualified startup, others invest in a personal loan to fund business projects and expenses. This is a simpler route for new businesses that don’t have the documentation typically required by credit unions to receive a loan.
Lines of Credit
Credit cards are easy to use, and so are business lines of credit. With a line of credit, borrowers are given a credit limit that they can make multiple draws up to the given amount. This differentiates from loans like installments, where the loan is distributed in one lump sum payment.
From big money needs like emergency expenses and resolving cash flow issues to smaller purchases such as supplies, inventory or day-to-day needs, a business line of credit covers everything to ensure your operations run smoothly.
Interest rates for lines of credit tend to be higher than installment loans since they hold a higher risk, however, interest will only be applied to the portion of the credit line that has been used. Fortunately, the application process for a line of credit is much easier than other loans and credit requirement is flexible, but borrowers with lower credit scores are viewed as high risk by lenders, often requiring a security deposit to use a line of credit.
Which Business Loan is Right for You?
Your small business is one of a kind, and it needs the proper nurturing to grow—and the proper loan to help it grow. It’s important to explore your options carefully and ask yourself how much loan you need, which program makes the most sense, and what goals you’re trying to accomplish, both long and short term. By weighing the pros and cons of each, you can find a loan option at your credit union that will accelerate your small business toward a prosperous future.