Types of SME Loans You Need to Know About

If you’re running a small to medium-sized enterprise, there might need for some additional capital to make your business run more smoothly. Whether you need to replace outdated equipment or there is some emergency situation, you can decide to take an SME loan. Tailor-made to fit the needs and requirements of a specific business.

Types of SME Loans You Need to Know About

There are several types of these loans that come with their own set of terms and conditions. You need to do thorough research before you decide which one will be suitable for your company. These are some of the loans you should know about if you’re thinking about borrowing money.

LOC or Line of Credit

If you’re looking for something more flexible, this might be the answer you’re looking for. LOC is quite different from a standard business loan, it works very similarly to credit cards. You are given a credit limit and you will be required to return the amount you have actually used. So, this could be a good option for those who are not in dire need of cash but want something that will make their small or sessional requirements covered.

As long as you keep paying on time and you don’t go over the credit limit, you will be very satisfied with this type of situation. However, when it comes to the amounts you can get in this manner, these loans are on the lower side when compared to the other options. Also, you will probably not have to put up collateral and secure it given the fact that they can be rather small. They are generally going from $1,000 to $250,000.

In terms of benefits, the best thing is the flexibility it gives. You will be able to replay as often as you need and that will allow you more room when it comes to finances. To get a loan of this type, you can get it from a traditional bank as well as from an online lender. Although you will need to fulfill certain conditions to qualify with the bank, online lenders will probably charge you a higher interest rate and lower limit.

SBA or Small Business Administration Loan

These are government-backed SME loans that are available to small firms from private-sector ladders. If this sounds appealing, you can view here all the basic types as well as benefits this loan can get you. Whether you are looking to expand, purchase new real estate, or simply need some additional working capital, SBA loans may be the perfect long-term financing option for you. SBA loans up to $10 Million are available, and with a variety of terms, you're sure to find an option that can meet your most basic or your most complex needs.

There are three types of SBA programs:

  • The 7(a) Loan Program – you will be able to get between $350,000 to $5 million if you get it and the terms and conditions will depend on the loan.
  • The Microloan Program – this is the smallest SBA you can apply for. The amounts are ranging from $10,000 to $50,000. If you’re running a startup or you need just a small financial boost, this could be the perfect option for you.
  • The CDC/504 Loan Program – this is perfect for small businesses wanting long-term and fix-rate financing to be able to modernize and expand their company. If you need to buy new and costly equipment or real-estate, this could be a good option. Depending on the reason you’re taking the loan, the terms are 10,20, or 25 years.

Whichever you choose, you will get to experience certain benefits. Of course, it all depends on the purpose you need a loan. 7(a) and 504 are for larger investments while Microloans would be perfect and can be used in multiple ways as working capital or to purchase supplies, inventory, etc. To be able to apply, you need to fulfill certain criteria.

Working Capital Loan

If you need some additional cash for daily expenses or for some sort of emergency, a working capital loan might be a perfect choice. This is a short-term loan and to get one, you will have to have a really pristine credit history. However, prepare yourself for a long procedure. There is a lot of paperwork and there is a possibility you might not get an answer for weeks or even months.

The good thing about WCL is that it comes with pretty reasonable interest rates. If you have a good credit score, it could be somewhere between 3% and 7%. If you’ve decided to apply, contact the bank you’re already working with as they have most of the information needed for a process to start. In the case that doesn’t work out, you can go to your local credit union or a third-party direct lender.

Business Term Loan

This is another type of SME loan available. What makes them different is that you pay back the capital in regular installments for a set period of time. Also, your interest rate will be at a set rate throughout this whole 1 to 5 year process.

BTL can be a great choice if you want to improve your company. There is really nothing that can confuse you when it comes to this deal but still go through the contract carefully before signing. The majority of businesses will find this deal appealing due to lower monthly payments and longer payout times.

You can apply through a bank but it can be quite a tiring procedure so prepare to be patient. Some banks have made things a bit easier by offering clients an online application form. You will need to submit basic documents such as driver’s license, credit score, and bank statements, among others.

Those looking for a way to improve their company on a larger scale or to simply secure it functions effortlessly on a daily basis could benefit from some of these SME loans. Procedures are often long and you will need to submit a lot of documents, but they will get you the financial help you need to expand your business.

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