Need money for your small business?

There are a variety of business loans available, but the current credit crunch is making it harder to get your hands on the capital you need. These days you’ll need to have your ducks in a neat row to apply for a business loan.

Before shopping for a small business loan, know just what your options are.

Is your small business in need of:

...Cash Flow in the Short Term?
If your business is on solid ground but needs some support in the cash flow department, a short-term loan is what you need. These loans can be structured in a variety of ways, but they are generally repaid in one year or less. Short-term loans are intended to carry a business through temporary lean times and are usually for less than $100,000.

One example of a short-term loan is a loan to buy inventory for a seasonal business. Seasonal businesses often have to borrow a lump sum of money to purchase inventory before the season begins. When the season ends, the loan is repaid in full. Short-term loans are usually paid back in a lump sum rather than with monthly payments.

...Long-Term Loans for Long-Term Investments?
When you need a large sum of money and can’t pay it back right away, a term loan is what you need. Term loans can be for one, five, seven, 10 or even 15 years depending on the circumstances. These general purpose loans are used for large investments in real estate, equipment, vehicles and other big expenses. They can even be used to support your business through a rough economic cycle like now or to start your own business.

...Working Capital Year to Year?
A line of credit (LOC) allows you to borrow up to a certain amount of money each year as needed.  This type of loan is typically used to cover operating costs when you have a cash flow shortfall. Most LOCs must be paid down to $0 at the end of the year in order to be renewed. Some lenders offer “revolving” LOCs, which do not have to be paid down. These are really long-term loans and are usually secured with accounts receivable, inventory or both.

...Credit Card Receipt Advance and Factoring?
These two types of business loans are like mirror images of each other. A credit card receipt advance uses past credit card sales as a basis to lend. Your business must accept credit cards and have a history of processing a minimum amount of money (usually $2,500 to $4,000). A lender will then advance you a lump sum and take a percentage of future credit card receipts for repayment.

Factoring, on the other hand, is selling past sales in the form of accounts receivable to a financing company. The company advances you most of the money and takes a small percentage as a fee.

Small business loans can either be backed by the lender or guaranteed in part by the Small Business Administration. SBA loans are through lenders, but they are usually easier to get because they do not pose as much risk for the lender. Expect to pay traditional closing costs, which can be as much as 2% to 3% of the loan amount. The interest rate for business loans usually depends on the amount and the length of the loan term. In general, the higher the loan amount the lower the interest rate. The good news about the weak economy is that interest rates are relatively low right now.

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