Whether you run a new business or an established one, most business need to take out a loan at some point. Businesses need loans for many different reasons and have different needs so there are different types of loans available to meet those needs. The amount borrowed, the term borrowed for, the purpose of the loan, and rates all vary between business loans. Besides the large banks, online lenders are available to make the loan process easy. Below is an outline of loans that can be applied for and received by businesses.
A standard form of small business financing is a term loan. This type of loan is when you get a lump sum of cash up front and you repay with interest over a predetermined period. This type of loan is typically best for businesses looking to expand who need the cash to grow. They are also good for business’ that have good credit and a strong business model that will allow them to get the money fast and not have to wait long for funding. Term loans allow you to get cash up front with larger borrowing amounts that other loan types. If you use an online lender you can typically get faster funding than a traditional bank. The only downfalls of term loans is that they may require collateral and they may have higher costs.
Line of Credit
A business line of credit is like a credit card. You apply and are given a credit limit and you have access to and can borrow UP TO that limit. You are not given a large cash sum. You pay interest only on the money that you have used and not the whole sum. This type of loan is best for short term loans or unexpected expenses and financing needs. They may also be well suited for seasonal businesses who have high and low points in the year and may need extra funds at times. Lines of credit are unsecured, so they typically do not require collateral.
If your business has a large list of unpaid customers and have a large number in accounts receivable, then you may consider an invoice factoring loan. You can get money for unpaid invoices. You sell the invoices to a factoring company who are then responsible for collecting the debt from the customers when the invoice is due. This allows you to get paid up front and then relinquish the responsibility of waiting to collect the funds from your customer. The fact that you can get fast cash for your business is a huge plus. Because you have the invoices to back up the loan as collateral, the approval faster is easier than most loans. However, they are often costly because they are doing the work of collecting the money for you and you lose control over the collection of your invoices.
These are a few examples of business loans that are available to you and your business. Do some research and shop around to find what would work best for the needs of your business.