To get your new business up and running, you need capital. Facilities, equipment, vehicles, employees and raw materials are just a few of the expenses you’ll have to cover to make the business a reality.
Luckily, many lending options are out there for a Minnesota entrepreneur. Use this guide to common loans for new business owners to get started.
Term loans
Entrepreneurs turn to this traditional business loan to acquire facilities, equipment and vehicles for their growing businesses. Many loans require a down payment, along with a personal guarantee and a healthy credit history. Applying can take time, and entails more paperwork than, say, an online lender. But stick with an established community bank, and you’ll see many benefits for years to come.
- Because you’re working with a stable, trusted lender, your interest rates and payments stay consistent.
- These loans are key to building your business credit history, so you don’t have to put your personal credit history at risk.
- Establish a relationship with a lender who knows the workings and opportunities in your community.
Line of credit
This revolving source of capital is ideal for covering short-term needs and recurring expenses when cash flow is tight. When you need funds to cover things like payroll, raw materials and shipping supplies, you can get the money fast, no questions asked. Once repaid, it’s still there for you to borrow again to help you meet other needs.
Business owners rely on the convenience and flexibility of a line of credit. At the same time, as with any other loan, it’s important to understand the risk.
Equipment loans and leasing
Lease or buy? That is the question.
On the one hand, if you need to conserve working capital, leasing is better. Making a down payment “locks up” money you might need to cover business expenses. Or, if the equipment would more than likely be sold or upgraded in the next five years (office and computer equipment are great examples), leasing may be more sensible.
However, certain equipment builds equity. And in almost all cases, buying costs less than leasing in the long run. (If your team has the skills to repair and maintain the equipment in-house, all the better.)
Either way, this type of equipment financing requires little to no down payment, and the application and approval process is usually faster and easier than other business loan types.
SBA and USDA loans
Federally backed loans under the Small Business Administration as well as the U.S. Department of Agriculture offer many benefits to entrepreneurs and lenders.
SBA and USDA loans give business owners access to longer terms and lower interest rates. This can make expansion or equipment purchases more feasible because these terms leave them with more month-to-month working capital.
For lenders, these loans offer a way to give great terms at less risk because the federal government is guaranteeing a portion of the loans. The goal is to make economic development happen in communities like yours.
For more details, this primer explains how SBA equipment loans work.
Working with Minnwest Bank gives you access to a preferred lender in the SBA or USDA network, which saves time and money. We thrive on working with doers like you. With our community roots and expertise, you’ll have the right tools to get your business off the ground. Contact a banker today.
For more information about starting your own business, please see our related post in our #smallbusinessjourney series:
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