Choosing the Right Loan for Your Small Business

Not all loans are created equal. Selecting the one that best fits your small business needs requires you to do a bit of homework.

To help you decide, we've prepared a list of the top four ways you can meet your financial needs.

Think of a business line of credit as if it were a credit card: You borrow only what you need up to your limit and you pay interest only on what you borrow. This option may be right for you if you believe your financial needs may go higher than your credit card's limit will permit.

For example, let's say your business is seasonal and has a $75,000 line of credit; when sales slow during the off-season, you may need to tap your line of credit. If you were to borrow $12,000, you would only pay interest on that sum while the remaining $63,000 would be ready if you required it.

But what if your financial coverage needs are smaller? A business credit card may serve you better than a line of credit. If you only need to cover smaller everyday items (think: office supplies), then why apply for a large credit limit?

A credit card may offer your business more flexibility, too. It would allow trusted employees to quickly make purchases, covering all of your day-to-day expenditures.

If you need cash to get your business up and running (and most of us do), then applying for a traditional business loan may be your best route. This will require you to meet with a loan officer at the bank of your choice.

Many banks are eager to help small businesses, but you need a viable business plan to go with your idea. Make sure you're fully prepared. Draw up a full proposal, answering all the questions the bank may have about your business. Don't make them guess, as no one will know your own business better than you.

Term loans are generally fixed loans for covering purchases on new equipment or expanding your office space. This allows you to better predict your cash flow each month as your monthly payment will never rise or fall. However, expect the bank to scrutinize your books as well as your own personal credit score when applying.

Why consider this option? Perhaps your needs extend beyond what a credit card can offer, and you don't want to apply for a line of credit since you only need to cover a large one-time purchase that doesn't require an ongoing line of credit.

These are just some of the loan options available.

When considering which one may best serve you, be sure to allow for some "breathing room." Borrowing the bare minimum you need to skate by may not be the best option. Unexpected expenses connected to your business expansion, such as training employees on new equipment, or meeting building codes, have a way of popping up.

Consult with your loan officer or financial advisor for further information.

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