Loans play a very important role both for individuals and businesses. Most businesses that have thrived used loans to get where they are. A business loan can come in handy when you are facing a financial crisis or planning to upscale your business.
Nonetheless, the type of business loan you choose will determine if it will help grow your business or not. As such, it is important to understand the different types of loans available in order to choose the right one.
Below are 9 types of business loans:
- Term loans
Term loans are probably the most common types of business loans available. This is probably because they allow business owners to borrow a lump sum and repay within a fixed period of time. The monthly payments are usually fixed and attract a certain percentage of interest.
- Business lines credit
Business lines credit is almost the same as credit cards. They offer borrowers a rotating credit limit that can easily be accessed through a checking account. One can spend his or her credit limit, repay and access more money.
This option is preferable, especially if you don’t know the amount of money you need. But the good news is that interest is only charged on the amount of money withdrawn.
- SBA loans
Small Business Administration (SBA) loans are favorable for business people who are interested in low-cost government-sponsored loans. The only downside is that SBA loans are known for their tedious loan application. It can take up to three months for your loan application to get approved or rejected. If you are not in a hurry with money and want lower interest rates, then SBA loans are likely the best choice.
- Equipment loans
In case you want to buy large or expensive equipment and you don’t have enough cash, an equipment loan is definitely something to go for. Equipment loans are usually designed to help businesses purchase expensive vehicles, machinery, and equipment.
- Commercial real estate loans
Commercial real estate loans are also known as mortgage loans. These types of loans are meant to help business owners to buy an existing or new property like a warehouse, retail space, or office. The loans are similar to term loans.
- Invoice factoring and financing
These types of loans are ideal for business owners who struggle to get payments on time. It is an arrangement that allows business owners to sell their unpaid invoices and get upfront payment as per the value of the invoice.
- Microloans
Microloans are also popular loans among business owners that offer up to $50,000. Because of the low amount of money one can get from these types of loans, they are perfect for businesses that are just getting started.
- Franchise loans
Opening a franchise business is another great way of attaining your business goals. It is much easier compared to starting a business from scratch.
- Merchant cash advance
Just like traditional cash advances, merchant cash advances are expensive. It is a loan arrangement that allows you to borrow and repay using your future sales.
In general, there are different types of business loans. The best option is to compare small busines loans and get one that suits your business needs. According to Lantern Credit, around 43% of small business owners look out for businesses in different stages, which shows the high likelihood of entrepreneurs approaching a lender.
