Quick Answer: The 8 most common small business loans include lines of credit, SBA loans, term loans, and cash advances. The rest are equipment financing, commercial mortgages, microloans, and business acquisition loans. The right choice depends on when you need the money and what you need it for. Lenders weigh your personal credit, debt coverage, debt utilization, and business revenue trend. Lines of credit suit ongoing needs, while term loans suit planned expansion.

What Are the Most Common Small Business Loans?

Are you looking for the best finance options to fund your small business? There are 8 Most Common Small Business Loans to help you resolve cash flow issues. They also allow you to expand your business.

From SBA loans, and business lines credit to microloans and equipment financing, we’ve compared different finance options. We list their specific pros and cons.

The right business loan will depend on when you need the money and what you need it for.

You may be a startup or the best performing small business. Either way, here are the 8 most popular types of business loans and how you can get approved for them. 

8 Most Common Small Business Loans To Get Funded 

  • Business Line of Credit

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The business line of credit is a flexible option you can choose to lend anywhere between $1,000-$500,000. The money is typically available in a week or two. With a 1–2-year maturity, the interest rate of the business can vary from 8-24%.

A business line of credit is revolving, which means you can access money all over again. The best part is, that you’ll only need to pay interest on the exact amount of money you use. This is true whether you’re using it to purchase equipment, add inventory or hire staff. You might also expand to a new location, pay invoices or add a vehicle to your fleet.

Qualifying for a business line of credit isn’t difficult. Suppose you’ve been in business for more than half a year. You are also generating an annual revenue of more than $50,000 while keeping a credit score of 560 or higher. Then it will be easier for you to get a loan.

During the application process, a lender will require you to make a personal guarantee. so, if you can make your payments consistently, this agreement would no longer be questionable for your lender.

  • SBA Loans

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SBA loans are another Most Common Small Business Loans to fill the financial needs of the business. SBA makes it easier to find funding options for small businesses that need financial help to carry out their operations.

SBA becomes a rescue for disadvantaged businesses that are struggling to borrow money. It allows borrowing amounts in the range of $50,000 to $5,000,000. The terms for the loan maturity have a broad range, typically from 10-25 years. However, SBA loans are based on heavy paperwork which is the major downside of the loan. This can take more time to complete the process.

For example, on application submission in early July, you often won’t see the funds until August or September.

The agency itself doesn’t lend most common small business loans. Rather, it guarantees a substantial portion of each loan. This reduces other lenders’ risk and makes them more willing to approve your request.

The SBA offers an array of loans to small business owners. Here are a few of the most popular options:

  • SBA 7(a) Loan: This loan can be used to fulfill all kinds of purposes. If you’re seeking less than $25,000, the lender might not ask for collateral. 7(a) SBA loans can be awarded for as much as $5 million to those who meet all the qualifications.
  • SBA 504 Loan: When it comes to funding projects, SBA 504 loans are helpful. Make sure to research well before approaching to get approval for the loan. Your business needs to have a net worth above $15 million. It also needs an average net income of $5 million or less even to be considered for the loan. There are lots of benefits it entails for qualified projects. These include building a new facility, buying land, and buying long-term machinery. Also, it comes with a fixed interest rate, 90% financing, longer amortizations, and no balloon payments.
  • SBA Express Loan: Express loan is known for its quick lending. Once you meet the requirements, SBA express allows you to finance up to $350,000. The application requires 36 hours or less to be reviewed. Since it is an SBA loan, the funds could take a month to arrive.

Make sure to gather all the necessary required to apply for an SBA loan.

  • Term Loans

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If you are looking to expand your business, a term loan can be a good fit for you. With a business term loan, you can acquire working capital, purchase equipment and hire additional staff. You can also do whatever you need to expand your business. The loan amount in term loans ranges from $5,000 to $2,000,000. It only takes a few days for the money to be transferred into the account.

Term loans are popular among entrepreneurs for decades. Most businesses go with term loans because of the reliability it comes with.

You can choose to have the repayment terms of the loan between 1-5 years. The interest rate can be as low as 6%. A major benefit of this Most Common Small Business Loans is simple. It’s easier for you to identify how much you can afford to borrow. It also makes it less stressful to pay off.

These loans have a fixed interest rate or flat fee. So, the payments will never go up during the lifetime of the loan. The major benefit that comes with term loans is simple. You can identify the amount of loan you can afford to borrow. This makes it easier for you to make repayments.

  • Merchant Cash Advance

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A merchant cash advance allows you to borrow a lump sum of cash to use for financing your business needs. After approval and transfer of the funds to your account, you can repay the loan. You do this by having an agreed-upon percentage of your daily credit card deposits retained for the lender.

The advance you receive can be used for a range of purposes. Are you an entrepreneur who just started your business? Then a merchant cash advance would be a flexible option to leverage finance for your business.

These are designed to provide finance quickly to the businesses just like short-term loans. The amount of loan you can apply for will vary from $5,000 to $200,000. It has a quick approval time within 24 hours. The interest rate for the funds provided starts from 18%.

The qualification process for a merchant cash advance is simple. This is because of the nature and terms it includes. This makes it less risky for a lender. Thus, you can save yourself submitting piles of paperwork in the application process and the lender won’t ask for collateral. All your lender needs to check is the past 4-6 months of bank statements or receivables.

  • Equipment Financing

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As the name suggests, equipment financing is the most common small business loans. It is used to purchase any kind of equipment your business need. Equipment loans are specifically designed for this purpose with the amount available up to $5,000,000. However, the name sometimes gets confused with purchasing equipment. Examples are trucks, forklifts, tractors, cubicles, refrigerators, trailers, conveyor belts, and trash compactors.

Rather this type of financing covers less obvious equipment. Examples include payment processing programs, solar panels, or accounting software for your office.

The completion process to access the money takes no time. It can be as fast as 24 hours to be completed after submitting the application.

The interest rate will be as low as 7.5%. To qualify for equipment financing is less difficult than many other types of loans. You need to make sure your business should have a presence for a year or more. It should also have an earning revenue of $50,000. Also, you need a credit of 650 or above. With a credit score below this, it would be difficult for you to get a loan.

You are in the green zone as long as you’ve got steady cash flow. You must also provide revenues for the prior 3-6 months. Equipment financing allows you to move forward with a purchase without draining your liquid cash and without worrying about payment.

The amount of loan your lender will approve depends on the type of equipment you are planning to buy. With a good condition of equipment having a strong lifetime value, you’ll be able to approve for more.

  • Commercial Mortgage

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A commercial mortgage is helpful for just about any property need. It could be retail space, an office, a warehouse, or a restaurant. If your business has been around for decades and wants to expand, a commercial mortgage allows building more.

Are you looking to purchase the dream location you’ve always wanted for business? Then you can use a commercial mortgage to help you reduce construction costs. It can also be used for refinancing to extend your payment term or secure a better interest rate.

Commercial mortgage loans are based on the asset and the value of the property you’ll be using as collateral. You can expect amounts ranging from $250,000 to $5,000,000. The interest rate is around 4.25% with 20-25 years of terms.

To get qualified for a commercial mortgage loan, you’ll need a clear strategy for using the money. For instance, suppose you’re going to use it for renovations to a property. Your lender will want to know how you intend to do it.

  • Microloans

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Microloans are the most common small business loans to help allow you to lend $50,000 or less. Offered by nonprofit organizations and mission-based lenders. These loans help startups and newer businesses who are struggling to balance their finances.

The benefit to get microloans is their low cost. Also, you get training and consulting from the providers to make the best use of the loan you get.

However, the loan amounts are usually smaller, and to get eligible for the loan, you need to meet the requirements.  

Microloans are designed for startups and businesses in disadvantaged communities. So, for those businesses seeking only a small amount of financing, microloans will be the best option available. 

  • Business Acquisition Loan

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A business acquisition loan is designed for the specific purpose of buying an existing business or franchise. When it comes to business opportunities, you need to have a pile of money to help you with the purchase. With a business acquisition loan, you can acquire funds from $5,000 to $5,000,000 at revolving terms of 10-25 years. The funds will take time to arrive fast, usually taking about a month to hit your account.

The best aspects of these loans are the low-interest rate of 5.5%. This allows you to save money over your lifetime.

With a business acquisition loan, you can start your business by buying a franchise or existing business. Acquiring an existing business is a great way to step right into an operational business. You avoid building it from the ground up.

According to the business you’ll buy, your application process varies. Make sure to plan on evaluating factors of the lenders such as your credit history, business tenure, and revenue.

Apart from that, you’ll need to provide records of the business’s performance and valuation. Include your own business plan and financial projections.

Also, lenders know how much relevant experience you have to run the business successfully.

How to Get Approval?

Once you click submit on a loan application, the lender will use multiple factors to determine their response. These same factors also play a role in determining the loan’s terms and rates if you’re approved.

Once you submit your application, the lender will take into account multiple factors to provide you with a loan. Here are 6 essential factors lenders use to evaluate your business credit card. They help lenders decide whether or not they are open to providing you funds:

  1. Personal credit – Lenders always have an eye on your business credit. And your business credit is often linked to your personal credit. Therefore, you should keep in mind making your personal credit clean. Lenders will also take a look at your personal financial health. The information that will be inspected includes credit in use, credit history, payment history, and amounts owed. 
  2. Personal debt coverage – Your personal and business finances are related. So, a lender would be interested in your personal debt coverage. If you’ve got a healthy state of affairs, lenders consider you the right choice to work with you.
  3. Business debt coverage – If your business has debt, there’s no problem for lenders. But they’ll consider whether you can handle its debt obligations. To make sense of your business debt coverage, a lender evaluate your cash flow and debt payments.
  4. Personal debt utilization – If you’re using personal debt, you’re in good company. About 80% of Americans are carrying some form of debt. The credit available that you’re not currently using can make you set apart from the others. To get this metric, a lender will divide your outstanding debt by the cumulative amount of your available revolving credit.
  5. Business debt utilization – Lenders also care about the state of their business debt. Having debt isn’t a big deal. What matters is whether the amount of debt you’re carrying is appropriate compared to the size of your business. It should also suit the industry you’re working in. This assessment comes from comparing your outstanding business debt to your assets and revenue.
  6. Business revenue trend – Lenders will be eager to work with you if your business is trending in the right direction. Thus, so they’ll want to find out the average revenue your business will generate over time. If your land is at or above the average for your industry, you’re in great shape. If your business revenue lands at or above average, then you’ll more likely to get approval. However, if you’ll fall below average, you’ll need to face some challenges in the pursuit of finance.

Wants to grow your business? Gconnectpro is here for you

If you want to expand your business or need funding for your new startup? Gconnectpro financial services can help you. We have been providing a wide range of loans. These include SBA loans, business lines of credit, term loans, personal loans, and more. They help all sizes of businesses get funded for their business needs. 

The best part is, that you can choose from hundreds of lenders. They can lend you the amount of cash you needed in just a few hours. We believe in providing customizable and consistent financial services so as to perfectly fit business needs. So, get in touch with the financial consultants. Do this before you are ready to access funds from the best financial provider your business deserves. This will get your business back on track.

Case Study: How I Compared a Term Loan and a Line of Credit for Equipment

In our experience, matching the loan type to the purchase matters as much as the rate. Long-life equipment usually fits a fixed term loan better than a revolving line.

I tested this on one sample $50,000 equipment purchase using rates from this guide. I compared a 5-year term loan at 6% with a 2-year line of credit at 24%. Here is what we found:

  • Term loan at 6% over 60 months: about $967 a month and about $7,998 in interest.
  • Line of credit at 24% over 24 months: about $2,644 a month and about $13,445 in interest.
  • The term loan also left about $1,677 more cash each month.

The result: choosing the term loan cut total interest from about $13,445 to about $7,998.

Frequently Asked Questions

What do I need to qualify for a business line of credit?

It is easier to qualify if you have been in business for more than half a year. You should also earn over $50,000 a year and keep a credit score of 560 or higher.

How long does it take to get SBA loan funds?

SBA loans involve heavy paperwork. If you apply in early July, you often won’t see the funds until August or September.

How much can I borrow with a microloan?

Microloans let you borrow $50,000 or less. Nonprofit and mission-based lenders offer them, often with training and consulting.

What factors do lenders use to approve a business loan?

Lenders review personal credit, personal and business debt coverage, personal and business debt utilization, and your business revenue trend.