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Which Small Business Loan Is Right For You?

When your brilliant business idea needs a cash infusion: it’s time to explore small business loans. But, with so many loan products out there – how do you choose? We’re laying out the options, so you can secure the funds that fit.

Traditional Term Loans: The Straightforward Solution

A traditional term loan is a lump sum of cash, paid back over a set term. Simple, right? These loans range from smaller microloans to larger amounts over $1 million.

Pros:

  • Fixed interest rates, fixed payments – easy to budget
  • Funds can be used for any business purpose
  • Longer terms of up to 25 years available

Cons:

  • Strict eligibility requirements around time in business, credit, revenue
  • Lengthy application and approval process
  • Collateral is often required to secure the loan

So, is a traditional term loan the way to go? It depends: if you have solid credentials and don’t need funds instantly, it could be an excellent low-cost option.

Lines of Credit: Renewable Capital for the Unpredictable

Rather than a lump sum, a line of credit gives you a revolving pool of funds to tap into as needed. It works like a credit card for your business. Funds are drawn, used, repaid, and can be redrawn.

Pros:

  • Funds are there when you need them, before you need them
  • Interest only accrues on outstanding balances
  • Application requirements are often less stringent than term loans

Cons:

  • Lower maximum borrowing amounts
  • Shorter repayment terms of 1-2 years are common
  • Extra fees like maintenance and draw fees can add up
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If your capital needs are unpredictable and timing is crucial, a line of credit provides vital flexibility. But, watch those interest rates and fees for costlier repayment.

Merchant Cash Advances: Lump Sum Funded By Future Sales

With a merchant cash advance (MCA), you receive a lump sum upfront. But repayment is automatically deducted from your daily credit card sales until the advance, plus fees, is repaid.

Pros:

  • Quick access to funds in just 1-2 business days
  • No collateral or stringent credit requirements
  • Repayment is directly tied to sales volume

Cons:

  • Extremely high factor rates, APRs over 100% are common
  • You forfeit future credit card receivables until the advance is repaid
  • Repayment amounts directly reduce your cash flow

MCAs provide ultra-fast capital, if you can afford the exorbitant fees. But, keep in mind, the amounts you automatically repay directly impact the funds flowing into your business on a daily basis.

Invoice Financing: Leveraging Your Accounts Receivable

Invoice financing turns your outstanding B2B invoices into immediate cash flow. You receive an advance on those receivables, with remaining balances released once customers pay.

Pros:

  • Rapidly unlocks cash tied up in unpaid invoices
  • Credit qualifications focused on customer quality, not your history
  • Amounts scale to match growth in sales and receivables

Cons:

  • Funding is capped by amount of outstanding invoices
  • Invoice financiers hold reserved amounts and charge fees
  • Some customers may resist having their payments redirected

If timely payments from customers are holding up your cash flow, invoice financing frees up those funds quickly. Just be aware of the costs and potential customer concerns.

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Small Business Administration (SBA) Loans

As name suggests, these loans are backed by the U.S. Small Business Administration. Lower interest rates and generous terms make them highly coveted by small businesses nationwide.

Pros:

  • Low-cost funds with interest rates capped around 8%
  • Repayment terms up to 25 years for real estate, equipment
  • No balloon payments and no penalties for early repayment

Cons:

  • Stringent eligibility criteria around credit, finances, time in business
  • Extensive paperwork, documentation and processing times
  • SBA loan amounts are capped at $5 million

These taxpayer-subsidized loans are highly affordable – but prepare for an exhaustive application and qualification process. If you have the financials, patience, and need lower rates for the long-haul, SBA loans are worth pursuing.

Choose The Right Fuel For Your Business Engine

As you contemplate which small business loan fits best, consider your qualifications AND your timeline. If speed and convenience are paramount, MCAs or lines of credit could be the answer. For affordability over the long run, pursue SBA or traditional term loans.

But, remember, every dollar you borrow impacts your cash flow and bottom line. So, weigh your capital needs carefully, read the fine print, and choose the loan option that keeps your business financially fit.

Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

"Super fast, and super courteous, Delancey Street is amazing"
Leo
$500,000 MCA Restructured Over 3 Years
"Thanks for helping me in literally 24 hours"
Jason
$250,000 SBA Loan Offer in Compromise
"Great choice for business owners who need a trustworthy partner"
Mary
$350,000 MCA Restructured Over 2 Years

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