Different Types Of Loans Available To Businesses

As your business grows and evolves, you will likely start to consider additional funding options. Securing the right business loan can help you to grow your business, expand your operations, and increase your customer base. In order for a business to gain from all these potential benefits, you first need to find the right loan for your business.

First: An Important Point To Remember

Before jumping straight into the types of loans that are available to businesses, it is worth mentioning a little piece of advice offered by biz2credit: business owners should understand their credit profile and how loan repayments work before taking out a new loan. A loan can be hugely beneficial for any business; however, you must read all the small print and create a realistic repayment plan to ensure your long-term financial health.

Types Of Loans

SBA Loan

As the name might suggest, an SBA loan is a loan supplied by the Small Business Administration. The Small Business Administration is a federal agency that provides loans programs and other services that have been designed to support and encourage small business growth and development across America.

The Small Business Administration guarantees a portion of the loan, which means that it is easier for businesses that would otherwise struggle to get a loan because they are deemed higher risk. SBA programs usually have lower down payments and longer-term financing options.

Business Line Of Credit

Unlike a business loan, a line of credit is designed to help a business owner to secure cash in times of need. A line of credit can be viewed as a cross between a business loan and a business credit card. It is much more flexible than a business loan, which allows a business owner to use it to tide them over in times of cash-flow drops or seasonal lulls. Usually, the interests on a business line of credit only begin to accrue when money is withdrawn.

Business Equipment Financing

This is a type of small-business loan that is used to supply the capital needed to purchase business equipment. It is common practice for the business equipment being purchased to be used as collateral for the loan. Your loan term will usually be equal to the usage expectancy of the equipment. Like any other business loan, your interest rate will be determined depending on your creditworthiness and the health of your business.

Unsecured Business Loan

An unsecured business loan—also known as a signature loan—is a type of finance that does not require the borrower to offer collateral against the loan. This means that the loan will be offered based purely on your creditworthiness. Since these loans are not secured against collateral, they usually come with a higher rate of interest.

Business Acquisition Loans

A business acquisition loan allows businesses to purchase another existing business, acquire a new franchise location, or buy out a partner. The amount of funding you gain from this type of loan and the cost of borrowing will differ depending upon the particularities of your business and industry.

Merchant Cash Advance

A merchant cash advance is not a loan; rather it is a business finance strategy that provides businesses with a lump sum of cash, which is paid back using a percentage of credit card sales. The payback schedule can differ from smaller, regular payments or monthly repayments on a fixed term. Essentially, a merchant cash advance is a commercial agreement where a business owner sells their future credit card sales to the funding provider.

Written by Eric

37-year-old who enjoys ferret racing, binge-watching boxed sets and praying. He is exciting and entertaining, but can also be very boring and a bit grumpy.