Written by: Marlene Piche, SVP Head of Branch Banking, Union Savings Bank
Deciding what kind of loan is the right loan for your small business can be tricky, but it doesn’t have to be. With the right research and help from your local bank, you can work with local lending experts to find the loan that will help your business prosper.
Before we get started, it’s important to keep in mind that loans do not differ based on the types of businesses that apply for them; they differ only in use. For example, a dry ice company that needs a warehouse and a local restaurant ready to open a new location would both apply for commercial mortgages.
If you’re just starting your loan search, check out our blog post on how small business loans work and how to apply for them. If you’re ready to consider your options, we’ve put together a list of the most common types of small business loans and best practices for each in this blog.
Commercial Mortgages
Commercial mortgages, also known as commercial real estate loans, are loans designated for the purchase of business real estate. You can apply for a commercial mortgage if you are purchasing an owner-occupied property or investment property. They usually have a term of 20 years with a variable rate.
Commercial mortgages are very popular loans for businesses who are purchasing property in a new location. They can be used to make improvements to existing properties or to refinance an existing mortgage.
It is helpful to go to a small business lender at your local bank when looking for a commercial mortgage. With their targeted expertise, local small business lenders will be able to help you find the commercial mortgage that works best for your business within your local business environment.
Revolving Lines of Credit
Revolving lines of credit offer a set amount of money that is available for an undetermined amount of time, similar to credit cards. They are truly handy for any size or type of business because they allow you to manage your cash flow with the flexibility to borrow and repay against a set limit – as your business requires.
Revolving lines of credit can be used to finance short-term needs, or fund unexpected events that can create temporary cash flow problems.
Because they are more flexible, open-ended loans, you do not have to reapply for a revolving line of credit every time you need funds, however, lines are analyzed annually to make sure the line is being handled appropriately. It is important to ensure that you make principal payments to reduce the line balance to $0 for at least 30 days during the year.
Term Loans
When it comes to financing fixed asset purchases, such as equipment and vehicles, term loans are a great option. They offer a set amount of money under specified repayment schedules, making them ideal for businesses that need a loan for asset purchases.
Unlike revolving lines of credit, term loans require regular principal and interest payments. These payment schedules vary in flexibility depending on what is being purchased, and they come with either fixed or variable rates. They typically last from three to seven years, and borrowing amounts are tied to the asset.
Term loans are great for established businesses and are secured by the asset being purchased. They are predictable, and, like any loan, they can be a great asset to growing your business if you plan ahead for replacing or adding new vehicles or equipment.
Federal Guaranty Programs
If your bank is a certified Small Business Association (SBA) lender, the lenders there can help you apply for a loan guaranteed by the government.
The SBA is a federal government agency that supports small businesses and entrepreneurs by providing loan guarantees, contracts, counseling sessions and other forms of assistance to small businesses. In doing so, the SBA can guarantee loans to small businesses that may not otherwise qualify for loans. The SBA can provide guarantees of up to 85% of a loan, greatly reducing the risk for their lenders and allowing the small businesses access to financing that they might not otherwise qualify for from traditional lenders.
As a certified SBA lender, Union Savings Bank can help you navigate through government programs.
Nobody knows your business’s needs and strengths better than you do, so finding the right lender who can understand that is the first step in finding the right loan. At Union Savings Bank, we want to see your business grow. Our lenders will meet with you one-on-one to find the right small business loans and solutions for your business.
To learn more about which loan is right for your business, make an appointment to talk with a business banker.
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