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Borrowing to grow: Loans available to small business

At certain stages, growing a business requires additional capital. In order to increase revenue, a company may need to invest in property, equipment, supplies, inventory, staffing or something else, but may not have the financial resources to do so. At these times, taking out a loan is often the key to unlocking future growth. Businesses facing these situations have a number of loan options to choose from. 

Here’s a brief look at the different types of loans businesses can use to help manage growth. 

Private loans from non-traditional lenders 

The easiest loans to get are from non-traditional lenders. Because these lenders don’t have to hold borrowers to the same requirements as banks do, they’re able to offer faster approval times and underwrite loans to businesses that aren’t able to qualify for other loans. 

Loans from non-traditional lenders come with a serious drawback, though. They typically have high interest rates. In some cases, the rates can be double or triple those of loans offered by banks, or even higher.

Businesses that only qualify for these loans may want to reconsider borrowing capital. While investing in growth is tempting, companies that can’t qualify for other loans are deemed high-risk prospects and are likely not in a position to take on more risk--even if that risk promises a potential reward.

SBA-guaranteed loans from banks and community lenders 

The Small Business Administration (SBA) doesn’t underwrite loans, but it guarantees several types of small business loans and provides funding for microloans. In general, small businesses in the United States qualify for these programs. (There are a few specific requirements. For example, businesses can’t be delinquent on any debt owed to the federal government.) 

Other loans from banks 

In addition to the SBA-guaranteed loans, banks also offer a variety of non-guaranteed loans.  Some examples of these loans banks offer include:

  • Commercial real estate loans, which can be used to purchase or renovate a commercial owner occupied or non-owner occupied building 
  • Equipment loans, which can be used to pay for purchases of equipment 
  • Unsecured loans, which have few restrictions on how funds are used and can provide financing while preserving business working capital
  • Lines of credit, which can provide a flexible financing option to utilize as needed. The business owner can decide how much to borrow and how quickly to pay off the balance.  

For help finding a loan, business owners should sit down with a knowledgeable banker. A banker can explain all of these programs in greater detail and help with selecting the best option.

Author Patrick Holm is a VP Business Banking Officer at Anchor Bank and has 8 years prior experience with major national banks. His B.A. degree was issued by University of Utah in 1996 and his current interests include Washington Business Week, a program for high school students exploring the free enterprise system. 

This article is featured in the 2017 Small Business Resource Guide. 

A free publication from Business Examiner Media.