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Small Business Loan Options in Iowa

A wide variety of small businesses call Iowa home. Businesses in the healthcare and social assistance industries, as well as accommodations and food services, manufacturing, retail and construction are some of the top small business sectors in the state. No matter what type of business you are running in this midwestern state, there’s a good chance you’ve experienced the frustrations of getting access to capital. Here we’ll explore some of the options available to Iowa entrepreneurs looking for small business loans.

How a Small Business Loan Can Help Your Iowa Small Business

As a small business owner you know what your small business needs. It may be a bigger warehouse, better equipment, more workers, a marketing budget, or maybe a combination of all of the above. 

A small business loan can help your business by giving you the funds it needs to take advantage of opportunities to stabilize or expand. But finding the right type of financing can feel confusing and overwhelming at times. There are many different types of financing available, each with its own pros and cons, as well as eligibility requirements. 

Types of Small Business Loans to Choose From

The most popular types of small business financing typically fall into these ten categories:

Lines of credit

If you need working capital, a line of credit may be a good financing option for your small business. Basically it gives you access to a specific amount of credit you can borrow against. You can use as much (or little) of that money as you want. As you pay back what you owe, you get access to that financing again. 

Great for short-term, flexible borrowing. 

Term loans

If you have a good idea of how much money you are going to need for a specific project and the sum is large enough that it would take you several months or years to pay it off, a term loan may be a good option. These types of loans offer the borrower a lump sum that they pay back in monthly payments over 2-5 years or more. (Some commercial term loans, including certain SBA loans, may offer repayment periods of as long as 25 years.) 

Great for predictable payments to fund specific projects.

Business credit cards

If you need a relatively small amount of capital quickly, a business credit card may be a good option. Oftentimes business owners who have good personal credit scores and sufficient income overall can get a business credit card. This provides access to short-term financing, though interest rates can be high. (You may want to seek out 0% APR offers for low-cost financing.) Another great thing about business credit cards is that many of them help you build business credit when you make your payments on time. 

Great for fast access to short-term capital that’s available to startups as well as existing businesses. 

Commercial real estate loans

If you are thinking about getting that bigger warehouse or a bricks and mortar location for your business, a commercial real estate loan will often be your best financing option. It can provide long-term financing at lower rates due to the collateral of the property.

Great for businesses that want to own real estate instead of renting. 

Equipment financing or leasing

If you are looking to get new equipment for your small business, look into equipment financing or leasing. It’s helpful for preserving cash flow and may provide tax benefits as well. 

Great for businesses that rely on equipment but don’t want to sink a lot of cash into that equipment. 

Invoice factoring or financing

If you need to get financing for your business quickly and you regularly invoice other businesses, invoice factoring or financing can help you get paid faster. Oftentimes this financing involves selling your invoices to another company at a reduced rate. 

Great for B2B businesses with clients on terms of net-30 or longer.

Merchant cash advance

If your business has a strong record of sales in the past— especially in the form of credit or debit card sales— you may be able to get an advance against future sales.  Daily or weekly payments will likely be taken from the businesses’ future revenues or bank account. Good credit isn’t required for most merchant cash advances.

Great for businesses with strong sales that need money very quickly. 

Microloans 

While they are called microloans, their impact can be big. These loans of up to $50000 can make a huge difference for many smaller businesses. Many nonprofits that offer microloans try to help business owners that belong to groups who have had difficulties qualifying for small business loans in the past such as veterans or minority business owners. If this is of interest, be sure to check out the Iowa TSB microloan program. (See the Resources section below.) 

Great for small loan amounts for businesses that normally have trouble qualifying. 

SBA Loans

If you own a small business and have had trouble getting financing at a good rate, you will want to check out loans guaranteed by the U.S. Small Business Administration. SBA loans are comprised of several different loan programs, including 7(a) loans, disaster loans, SBA Express, microloans and disaster assistance.

Great for eligible businesses with the ability to repay a loan but challenges qualifying. 

Crowdfunding 

Crowdfunding is available to different types of small businesses at all stages of growth. Depending on the crowdfunding platform you choose, you can usually allow individuals to invest in your company one of three ways. The first way is by offering equity from your business through investment-based crowdfunding. The second is offering products or other rewards to backers. The third option is to take out a loan from individuals on the platform.  Each of these different types of crowdfunding is very different from the other, so make sure you find one that works for your business. 

Great for startups and existing businesses with a product or service individuals want to support. 

Small Business Loan Options for Iowa

You can always start your search for financing at local financial institutions, such as credit unions banks. These types of loans often carry excellent terms. But many businesses find they don’t qualify or need financing quickly. In those cases you may want to consider a wider range of options. Here are options to consider: 

Lines of credit

Term loans

Commercial real estate loans

Equipment financing or leasing

Invoice factoring or financing

SBA Loans

Business credit cards

What it Takes to Get Approved for a Small Business Loan

Getting a small business loan is going to depend on many factors, and each lender is different. However, there are four common eligibility factors most lenders will consider: 

  • Business income
  • Credit
  • Time in business
  • Industry

Financials

Income is important to demonstrate your business can repay the loan. Many lenders will require you to supply your business bank statements in order to check that you meet their minimum income requirements. Sometimes you will also need to supply your business tax returns along with supplemental business financial statements. This is especially true if you are trying to get a traditional bank loan or SBA guaranteed loan. 

Credit 

Whether you have good or bad personal or business credit scores, there are financing options available for your small business. However, having good credit scores will give you more financing options. If you are working on your credit, but still want financing, check out crowdfunding, invoice factoring, merchant cash advances and microloans. All of those will probably be easier to get.

Industry

Before you decide on a particular loan make sure there is a company that offers that type of loan to a business in your industry. There are often businesses in “restricted industries” that certain companies will not or cannot lend to. 

Time in business

This one is pretty self explanatory, but a business that has been around for at least two years has a better chance of receiving funding than a newer company. This is simply because these companies are largely seen as less risky than their younger counterparts. 

How to Choose the Right Loan for Your Iowa Small Business

The best loan for your Iowa small business is the one you get, and the one you use successfully to grow your business! For each business that will look a little different.

As you’re investigating options, consider these important factors: 

  1. What do you plan to accomplish with the financing?
  2. How much do you need to do that?
  3. How long do you need to borrow? 
  4. How much can you afford to make in payments and how often?
  5. What are your strengths and weaknesses when it comes to qualifying? 

Getting a loan is a big financial decision. Taking time to research options before you are scrambling for financing can improve your chances of getting something that works for you and your business. 

Small Business Grants for Iowa

Small business grants are definitely worth considering for your business. Grants are money you don’t have to pay back. But there are important factors to consider: 

  • Many offer smaller amounts of money
  • Large grants or government grants may require a professional grant writer
  • Many are highly competitive
  • Can be a lengthy process from start to finish

That doesn’t mean you should rule out the idea of getting a small business grant. Just understand it’s going to involve as much effort as finding a client or customer that will pay you— and sometimes more. 

Grants are made by local and national foundations, government agencies, even some private businesses. You can also use grant search platforms such as Grants.gov and Opengrants.io

Additional Resources for Iowa Small Businesses

If you are serious about growth, take advantage of small business resources available throughout the State of Iowa. Many of them are offered for free or at a low cost. Some great resources for Iowa small business owners include:

Iowa Small Business Development Centers

Iowa’s Small Business Development Centers (SBDCs) help business owners with all the different challenges of running a successful business. From helping you create a business plan, to export opportunities, to assisting you in finding a loan, SBDCs are there to help small business owners. They have locations in multiple cities including Des Moines, Ames, Cedar Rapids and more, but they can also help businesses in rural areas through remote assistance. Services are free or at a low cost. 

IA Source Link

IASourceLink is a great online resource that helps Iowa small business owners understand what resources are available to them and give state specific program options. It connects Iowa entrepreneurs to a network of 360+ nonprofit resource organizations offering business-building services.  IASourceLink is a service of the Iowa Economic Development Authority (IEDA) in collaboration with the John Pappajohn Entrepreneurial Center at the University of Northern Iowa.

Iowa’s TSB

Iowa’s Targeted Small Business Program (TSP) is designed to help women, individuals with minority status, service-disabled veterans, and individuals with disabilities overcome some of the hurdles to starting or growing a small business in Iowa. Among the benefits are access to low-interest business loans of up to $50,000 with free business support. 

This article was originally written on February 18, 2022.

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