When and how to use a small business loan to grow your business
The bank is the first place many small business owners go for startup capital or a line of credit to grow their business. Before you pursue an online loan or launch a crowdfunding campaign, talk to your personal banker to learn what options are available. If you don’t qualify for a loan from your bank, nonprofit, community development lenders like Pathway Lending specialize in providing loans and hands-on support to business owners to make them stronger.
It’s important to be knowledgeable about what lenders are looking for in a business owner. That means considering which type of business loan is best for your business and how much you want to borrow.
Types of Business Loans:
Applying for the traditional bank loan has advantages and disadvantages over other methods of funding. Banks are regulated by Federal and State law, so they may offer the best interest rates, but are limited to the amount of risk they are able to take.
If your business is too risky for a traditional bank loan, you may qualify for a microloan. Microloans provide small loans to people who want to start or grow businesses, but fall under higher risk profile than traditional banks can lend to. However, they are limited to $50,000. The SBA Lender Match tool is a great resource to find a microloan for your business.
This type of funding is unregulated and growing due to the internet’s ability to connect business owners with capital quickly. However, the interest rates tend to be much higher than other sources and lenders typically take an annotated daily payment. Read our helpful article about online lenders here.
-Peer-to-Peer Lending Platform-
Peer-to peer lending allows borrowers to take loans from individual investors who are willing to lend their own money for an agreed interest rate. The profile of a borrower is usually displayed on a peer-to-peer online platform where investors can assess these profiles to determine whether they would want to risk lending money to a borrower.”
Pros of using a business loan
- You maintain full control and ownership of your business,
- For traditional loans, it’s easy to calculate the cost of capital for long-term planning
- The cost of debt capital can be less than selling equity at early stage development
Cons of using a business loan
- There’s a monthly payment required regardless of cash flow,
- Personal collateral at risk, and
- Terms are often based on your personal credit ability (Check out the 6 C’s of Credit)
Pathway Lending offers several great loan products for small business owners. You can read about each type of loan we offer, and see typical terms and uses in our Loan Catalog. Want to learn more about other business capital options? Click here to return to the “4 Sources of Business Funding” article.