Small Business Loan Options

Taking out a small business loan can provide the liquidity needed to either open a new venture or expand an ongoing operation. Securing a small business loan is similar to securing a personal loan; the financing available will rely on both the company's fiscal history and the financial health of any owners listed on the application. To get the best deal possible, owners should seek financing from a number of different sources and consider alternative options to straight debt financing.

Small Business Administration Loans

The Small Business Administration is a government organization providing assistance to small business owners throughout the country. The assistance extends to areas of disaster assistance, federal contracts and much more, but financing through the SBA is one of the most popular uses of the organization. The SBA offers a number of different small business loan options including disaster assistance loans, surety bonding and special purpose loans. These loans are a debt arrangement; they are not grant programs. The SBA does offer grants in some cases, however. The SBA also offers minority loan options to gender and racial minorities. The SBA received additional financing and support from the Obama administration after the 2007-2008 recession and subsequent financial stimulus package. SBA loans may be less expensive for business owners and forgive less-than-perfect applications.

Secured Business Loans

Secured business loans are typically offered through traditional senior lenders such as banks and dedicated lending companies. You will need an asset base in order to seek a secured loan. A home, business or automobile may be posted as collateral depending on the size of loan you are seeking. This loan will be considered a senior loan for your company, meaning it will be the first to be paid off in a bankruptcy situation. Senior loans are typically straight debt financing arrangements using collateral. Interest rates and loan terms will be very rigid and based on your loan application. You should be able to secure a better interest rate by posting a high amount of collateral. However, the major downside to these loans is the potential for high penalties if you pay them off early, refinance, or otherwise modify the loan terms. Typically, a large degree of a small business's initial capital will come from this loan.

Subordinated Business Loans

If you cannot secure enough financing to carry out your business plan through an SBA or senior loan, you can consider subordinated loans to make up the difference. Subordinated loans take second place to the other financing you have in place. This may make them more expensive, but they also may be catered to your specific needs. They are flexible because these types of loans are secured through private investors like mutual funds, private equity groups and insurance companies. They issue you a degree of financing in return for equity in your company and a percentage of your future yields. Because you do not place a collateral for this type of loan, receiving the additional equity will raise your financial profile with your senior lenders.