Types of Small Business Loans—Everything You Need To Know
In this article, we will explain different types of small business loans and ways to qualify for one without a hassle. If you need to draft a loan request letter to apply for a small business loan, we are here to help! Subscribe to DoNotPay and create a watertight letter within minutes!
Small business loans are financial solutions that help people run their small and medium-scale businesses. Business owners request loans to meet expenditures, such as day-to-day expenses, purchasing new equipment, or working capital for cash flow. Since the loans are small, they are usually easy to qualify for because they:
- Require minimal paperwork
- Do not require a high credit score
- Are usually processed quickly
|Small Business Loan Type||Description|
|Small business line of credit||
|Merchant cash advance||
|Small business term loans||
|Real estate loans||
|Working capital loans||
|SBA small business loans||
Once you choose the type of small business loan you need for your company, the next step is deciding how to get it. Here are some of your options:
- Direct online lenders—Their prices are higher compared to other lending options, but the borrowing process is quick, and there aren’t too many requirements
- Commercial banks—Although banks can offer bigger loans, they have a demanding requirement process for small business loan borrowers. Banks require a good credit rating, and they have the advantage of giving lower interest rates
- Community banks—Community banks are locally operated and smaller than commercial banks. They have an easy loan approval policy compared to commercial banks and do not focus solely on credit scores
- Peer-to-peer lending sites—The P2P lending site acts as a middleman between the borrower and the lender. So, instead of a single lender, a group of investors lends the money to a business. This type of loan comes with high interest rates but is often easy to qualify for compared to other options
- Bank lenders funded by the SBA—Some SBA lenders are banks with a complicated application process but with lower down payment requirements, low interest rates, and a longer repayment term
There are several terms and conditions that you need to comply with to qualify for a small business loan:
- Build up your credit score—If you intend to get your loan, you need to up your credit score. In case your score is lower than what you need, pay off your debts in time, keep a low balance on credit cards, and pay all your bills
- Understand the requirements—You must go through the lender’s requirements and qualifications to increase your chances of getting approved for a loan
- Develop a business plan—Show your lender how you plan to use and return the money. This can include the following aspects:
- Purpose of your business
- Reason for getting a loan
- Market analysis
- Payment schedule
- Financial plans
- Provide collateral if required—Some lenders require you to provide an asset as collateral to take out a small business loan
Have you decided on getting a small business loan from a lender but do not know how to draft the loan request letter? Worry no more because DoNotPay is here to help! Our AI-powered app can assist you in preparing a killer loan request letter in no time.
Here is what you should do once you sign up for DoNotPay:
- Search for the Business Loan Request Letter tool
- Collect and prepare credit scores and financial statements
- Provide information about the loan you intend to apply for or let us help you find the perfect lender for your needs
- Upload your documents
Our app will generate a customized loan request letter on your behalf that you can use to apply for the desired loan.
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