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Loans for Small Businesses in Trouble

There are many types of disasters that can quickly and negatively impact small businesses. When this happens, one of the first solutions business owners look for is a loan. Of course, there are options that can land those small companies in trouble, but there are several options that are safe and beneficial. Naturally, the right type of loan depends a lot on the business situation and the circumstances that caused the trouble. However, there are several options to consider:

  • Business lines of credit
  • Term loans with or without fixed rates
  • Invoice financing
  • Bridge loans
  • SBA loans such as 7(a), 504, and Express loans

Small business loans play an important role in maintaining economic growth. The funds from these loans may be used to cover general business expenses, provide working capital, make commercial mortgage payments, or purchase needed business property. The type of loan often affects how the funds can be used.

Business Lines of Credit

This loan option provides flexible, revolving capital from a bank or other lender. The business owner may be approved for a certain amount. When purchases or payments are withdrawn from the credit limit, the available credit amount is reduced. As soon as credit funds are used, interest begins to add up. This option is convenient because it can be used and reused as long as the borrower maintains a good credit standing and stays within the credit limit. This type of loan may be obtained before a business is in trouble and can be obtained with only a vague idea of how it will be used.

Term Loans

Banks offer term loans for a specific amount and a specific repayment schedule. This type of loan may come with a fixed interest rate, a floating rate, or balloon payments. Term loans are often suitable for small businesses that have already been established and that have a sound financial history. Sometimes, a term loan is only approved if the borrower can make a significant down payment. The proceeds from this loan may be used to purchase fixed assets or even new building construction.

Invoice Financing

This option is known by a variety of names, including invoice discounting, receivables financing, and accounts receivables finance. When small businesses use this option, they offer their regular goods and services to customers and send out invoices as usual. The details of the invoices are then turned over to the lender (or finance provider.) A percentage of the invoice is paid to the business owner within a day or two. Sometimes, the lender will take over the task of obtaining the amount due from customers. When the customer pays their invoice, the rest of the invoice amount is sent to the business owner – minus an agreed-upon service fee.

Bridge Loans

These loans are often used in real estate situations where the business owner wants to buy a new building before the old has been sold. The loans are temporary and offer some financial assistance for just a few months. Businesses may use a bridge loan to bridge the gap made while waiting for a long-term loan that is in the works. The loans offer quick access to capital, but they tend to be more expensive than other types of loans. When seeking a loan to help a small business stay afloat, it’s often very helpful to work with a reliable, established bank, such as Guyana bank for trade and industry, a leading bank in the affluent section of Guyana, a Caribbean country. Established banks can offer safer terms than other lenders. 

SBA Loans

The Small Business Administration offers a variety of loans to help new small businesses get started and established businesses survive. The SBA works with specific lenders in order to make loans available. Rather than lending money directly, the SBA establishes guidelines for lenders and borrowers. The involvement of this government agency takes away some of the risks for lenders and makes it easier for lenders to get loans. These loans are often some of the safest options:

  • 7(a) loans are the standard type of loan from the SBA. There are several varieties of this loan, and the terms and conditions vary by loan type.
  • The 504 loan is also known as the Certified Development Company program. This loan is often used for the purchase of real estate, buildings, and machinery.
  • SBA Express loans can be used for a variety of purchases, are often available very quickly, and are an option for business owners who don’t meet the qualifications for other loans.

Some of the most valuable benefits of SBA loans include the chance to get reliable counseling and education, rates and fees that are much better than other loans, lower down payments, flexible overhead requirements, and freedom from providing collateral.

Pre-Loan Preparation

Small business owners should research their options thoroughly before applying for any type of loan. It’s also important that small business owners learn to recognize unreputable lenders. Some unscrupulous lenders add a lot of hidden fees and may leave businesses in worse shape than before. Business owners should also spend some time making sure their businesses are worth the risk to lenders. Ultimately, any loan is only as good as the business owner’s financial plan.

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