Most of the small business owners need to borrow money at some point. The good thing is that there are many exclusive loan programs available in the lending market. Unfortunately, that is also the bad news. In other words, the cash is accessible; however it can be quite complicated to determine which small business loans is right fit for your business need, especially just because of the fact that many loans fund specific things. Here is a quick look at some of the common small business loan types.
- SBA Loans
Small Business Administration (SBA) backs various types of small business loans made through local banks and agencies. SBA loans can be used to purchase business equipment, furniture, inventory, and more. For more details on SBA-backed loans, you can visit SBA website.
- Line Of Credit
These short-term loans allow you to access a specified amount of cash that is deposited into your business bank account on an as-needed basis. You pay interest on the cash that is given to you. Line of credit can be used to purchase stock and pay operating expenses for working capital, among other matters, however not to buy equipment or real estate.
- Revolving Lines Of Credit
When a lender provides a certain amount of cash to a borrower and allows the same amount to be borrowed again upon repayment, it is called a revolving line of credit.
- Letter Of Credit
Generally used in international trade, this file allows business owners to guarantee payment to suppliers in other countries. The letter of credit surrogates the bank’s credit for the business owners up to a fixed amount for a specified time frame.
- Loans From Friends And Family
Cash borrowed from friends and family members can come with the low-rate repayment plan you will ever get. Borrowing from loved ones incorporates risk. Set up a repayment schedule in writing, and stick with it so a family event does not turn into a combat zone.
- Angel Investors
Of course, most family members will not fervently write you a check to fund your startup business. This is where an angel investor comes in, especially between the first and second years of your business’ existence. Angel investors generally ask for equity, a high return on investment and a well-elaborated 5-year plan in return.
- Unsecured Business Loans
Loans can come in two types: Secured loans or unsecured loans. When your lender knows you and is satisfied your business is appropriate and the loan will be repaid on time, they may be inclined to put in writing an unsecured loan. With this unsecured loan, there is no need for collateral. The lender presents you with an unsecured loan as it considers you a low risk. As a new business, you are highly unlikely to qualify for an unsecured business loan; it typically calls for a track record of productivity and profitability.
- Secured Business Loans
A secured business loan, alternatively, requires some kind of collateral; however generally has a lower interest rate as compared to an unsecured business loan. When a loan is written for more than 12 months, is used to purchase equipment, or does not seem risk-free, the lender will ask that the loan be secured by collateral. The collateral used, whether real estate or inventory, is expected to survive longer than the loan and is normally associated with the objective of the loan.
- Accounts Receivable Financing
Accounts receivable financing is an exciting way of lending wherein the factoring firm buys your accounts receivable amounts and proceeds to collect on them in the future under the normal terms. You can sell your accounts receivable for 97% of their value, and the factoring firm earns the 3% as they are paid by the customers that owe you cash.
- Term Loans
In case your business requires cash to purchase equipment or real estate, you need a term loan. This loan is set to terms, which mean there may be a fixed interest rate, collateral, down payment, monthly payments, and a term of months or years that consistent payments will be made through.
Businesses in the startup phase need to offer quite a few documentation, business planning, and personal collateral for a bank to be inclined to risk lending the money to your new business. Business operations in the growth and expansion phase generally see better outcomes due to the fact they’ve steady profits or growing sales to demonstrate that they have a good chance of repaying the loan.