a guide to small business loan

Advertisement If you're ready to start a business or already have one you want to grow  you have three main loan options: government-backed loans, traditional bank loans and loans provided by alternative lenders.

But before you start applying for a loan, you need to answer several critical questions that help you determine which kind of loan is best for you:

What do you need the money for?
How much money do you need?
How long will it take you to pay it back?
How long have you been in business?
What is the current financial shape of your business?
How much collateral, if any, do you have to put up for the loan?
How quickly do you need the money?
Answering these questions will help determine if you should pursue a government-backed SBA loan, a loan or line of credit through a bank or other financial institution, a cash advance from a merchant services provider, or a loan from an alternative lender.


Here's a breakdown of what you need to know about each type of loan.

Small Business Administration loans
The Small Business Administration (SBA) offers several loan programs designed to meet the key financing needs of a wide range of business types.
With these loans, the government isn't directly lending small businesses money. Instead, the SBA sets guidelines for loans made by its partners, which include banks, community development organizations and microlending institutions.
Businesses have a variety of loan types to choose from when pursuing an SBA loan, each of which comes with its own parameters and stipulations on how the money can be used and when it must be repaid.
Pros and cons: The government guaranty, which typically covers between 75 and 90 percent of the loan, eliminates much of the risk for the lender. In addition, the terms of an SBA loan also tend be more favorable to borrowers. The downsides are that additional paperwork needs to be filed, extra fees need to be paid and it takes longer to get a decision.

What the experts say: "The SBA provides a guaranty that enables the bank to extend credit it would have otherwise declined," Javier Marin, a consultant with the Florida Small Business Development Center at the University of South Florida, told Business News Daily. "This is true for startups, companies with a tight cash-flow stream, and business owners with borderline, not bad, credit scores. Advertisement