6 Different Types of Business Loans From Which You Can Choose: Every business needs are different and this means that when you are looking to raise the business loan, there can be various business loan options available in the market to you. Sometimes business owners think that if they can’t get a business loan from their bank, they are unfortunate. But that is not the case, there are different types of business loans that business owners can consider when they looking for money.
However, the different types of business loans that are available in the market have different qualification requirements, interest rates, and terms. Each type of loan is designed for a different business need. Whether you are looking to buy an equipment, real estate, inventory, or you just need some quick working capital, these loans are suited for all your requirements.
1) Term Loan:
Similar to a traditional bank loan, many lenders offer term loans. These lenders use the same concept that you are probably most familiar with in any type of loan: you avail a fixed amount of money and make set monthly payments for a fixed amount of time until the loan plus interest has been repaid in full.
While term loans come with higher interest rates than other traditional bank loans. Term Loans are typically easier to qualify, and borrowers are typically able to obtain funds in a few days or weeks, compared with the drawn-out process of applying for a traditional bank loan.
2) Business Lines of Credit:
Business lines of credit come in three general types: Unsecured lines of credit, Secured lines of credit and Short-term lines of credit. Unsecured lines of credit are just like those you had to get from a bank, but with higher interest rates. Secured lines of credit utilize collateral, such as a piece of equipment. Short-term lines of credit can be secured or unsecured and serve to be a good fit for younger business owners.
These types of business loan are all great to have on hand even if your business doesn’t have immediate capital needs. The general rule is that the best time to apply for any type of financing, but especially for a business line of credit is before your business actually needs the cash.
3) Equipment Financing:
Equipment financing is a very popular type of business loan choice for those businesses that are planning to use funding for a major purchase of machinery, vehicles or even office computers or equipment. Rather spending on a new piece of equipment completely, if you take out a loan, you can collateralize the loan with the equipment. This increases your chances of qualifying and probably helps you to get a better rate.
In this scenario, you would pay back your loan just as you would pay any other loan, and at the end of the period, you own the equipment. Most of the banks offer manufacturing equipment loans, but banks also have specialized product around construction equipment loan. IT and office equipment and healthcare equipment loans are also provided by banks.
4) Invoice Financing:
Invoice financing is another popular type of business loan, in which you use your outstanding invoices to get a cash advance from a lender. Invoice financing is a powerful tool to raise capital. This can provide a great way for small businesses to find working capital.
Invoice financing works in many different ways. Usually, a lender will advance you a percentage of an invoice (80%) and holds onto the remaining percentage. Then, as you both wait for your customer to pay, the lender charges a certain percent per week (1%). When your customer pays you, the lender will settle up with the remaining 20%, minus fees (1% per week plus an additional flat processing fee around 3%).
5) Merchant Cash Advances:
In this type of business loan, you get a lump sum of cash up front that you can use to finance your business. Rather of making one fixed payment each month from a bank account as you would with a term loan, you would make payments on a merchant cash advance either by keeping a percentage of your credit and debit card sales daily or by fixed daily or weekly withdrawals from a bank account.
This type of loan best suited for businesses that have high and consistent credit and debit card sales and can handle frequent repayments. This type of loan also helps those businesses that cannot get investment anywhere else and cannot wait for capital.
6) Working Capital Loan:
Working capital loan is one of the business loans which taken to overcome the short-term shortage of cash. This type of loan is generally used to when cash in the business is not enough to take care of the day-to-day operations of the company. Working capital loan is a one of the best ways to overcome the temporal shortfall of cash, irregular cash flow or to cater to a sudden explosion in business. A manufacturer, service provider, retailer/wholesaler or a trader engaged in imports/exports can apply for working capital loans.