DIFFERENT TYPES OF LOANS YOU CAN TAKE FOR YOUR BUSINESS

by Josh Biggs in Finance on 22nd April 2020

Don’t you think difficulties are a part of the business? With efficient planning and strategies, you can make anything possible, whether it is increasing sales or overcoming financial crunches. After all, the majority of the businesses are trying to make ends meet due to insufficient funds. Sometimes, it can halt business operations too. So, how about you look for financing options?

There are countless choices available with loans. You need to pick the one that complements the nature of your business and fits your funding needs. Some businesses procure loans to cough up money on expenses while some need it to purchase assets. Therefore, depending on your need, look below to explore five different types of loans you can take for your business.

1.     Business Line of Credit

A few business owners are not aware of how much money they need. Even though they have a rough estimate, but not a bright idea. In this situation, consider opening a line of credit as your ideal option. It would give you access to ample funds, enough to combat cash flow problems and foot all the pending bills. Alongside this, it would also give leverage only to take out the funds you need.

Do you know what else? Banks only charge interest on the amount you borrowed rather than the entire credit limit. Similarly, it opens doors for unlimited funds. You can borrow, make repayments, and borrow again until the credit line is open. It doesn’t take months for approval; if you provide all information, you can get approval within 24 hours.

Thus, it is the finest option when it comes to acquiring funds for unforeseen expenses. Besides, some people also call it a bad credit score business loan since it doesn’t ask for an overwhelming credit score, making it available for people with bad or average scores.  

2.     Small Business Administration Loans

There are different types of businesses in the industry. Some are established enough to bag commercial loans at low-interest rates while others struggle with getting funds. SBA loans encourage small business owners to acquire funds at low-interest rates. It offers feasible repayment schedules to make funding more accessible. After all, small businesses are already thriving in their initial years.

These loans have simple application processes but demand an impeccable credit history to avoid frauds. At the same time, you have to submit all business documents, license, bank statements, and business plan to prove credibility. Are you wondering about the amount? It lends up to $50,000, fulfilling your financing needs in the best way possible.

3.     Invoice Factoring

Sometimes, customers can take forever to make payments, resulting in cash flow problems. In this case, rather than going after a commercial bank for funding, consider invoice factoring. It is simple, you have to sell your customer invoices to a company, and they would pay you instantly.

However, factoring companies don’t pay the entire amount pending with customers. They give you 70% to 90% of it and the rest when customers pay, but they do deduct their fee along. There are also companies you lend you the entire amount and charge a weekly fee until repayment. So, it doesn’t only resolve cashflow problems but also gives you quick access to funds since it takes several hours to get approval.

4.     Asset Financing

Honestly, machinery and equipment are quite expensive, and businesses are unable to bear the entire cost. Asset financing is the ideal fit for this situation. The financial institutions would lend you money, specifically for purchasing an asset, while some also purchase it on your behalf. Alongside offering low-interest rates, it a lot easier to acquire than a traditional bank loan.

Do you what is the best part? You are free to use the equipment while making repayments for it at the same time. The right to use would get transferred once you acquire funds, but ownership gets transferred once you have made all the repayments.

5.     Commercial Loans

All those businesses who like sticking to the basics, opt for commercial loans. These are the most common and safest way of acquiring funds. There is no limit on the amount you can borrow, nor are there any restrictions on how to use the funds. You can invest in product development or use it for your business expansion; it is up to you.

Usually, you have to submit collateral as security for the loan. Plus, if you have an established image in the market, it can get you a lower interest rate than in markets. However, you need to have a strong credit score and a positive credit history to get this loan approved.

TO CONCLUDE

Even though it depends on your financing needs, it can be challenging to choose the right financing source with so many options. Therefore, take a dig at your financial position to see where you stand and why you need funds. Is it because of inferior liquidity, or you want to launch a new product? Once you have a clear picture in mind, it would become easy to choose from different types of loans you can take for your business. Look above to explore the options.

Categories: Finance