There are many ways to acquire funding for a new business. With so many different loan types and options, it’s easy to get bogged down in the search for startup money. After all, you’re busy putting together business plans and proposed inventory sheets. You don’t have time to waste on fruitless inquiries to finance programs that don’t suit your needs. Here, we look at some of the most common types of business loans to help narrow your search before you even begin.
Types of Business Loans
Term Loans
A term loan is a simple type of business loan in which the borrower receives a large, lump sum of money. Repayment, with interest, is made over a predetermined period of time. It can take months to receive this type of loan from a brick and mortar bank, but many online lenders offer this sort of loan in only a few days. Watch out, though, interest rates and fees are often higher with an online lender.
SBA Loans
An SBA loan is much like a term loan, except that it is guaranteed by the Small Business Association. An SBA loan comes with long repayment periods and up to 5 times the funding of a traditional term loan. But the application process is very rigorous, and many borrowers wait a long time to receive money.
Business Line of Credit
This type of loan provides flexibility to the borrower. The lender approves a line of credit, up to a certain amount. Borrowers may use as much or as little of that credit as they need and are charged interest only on money borrowed. This type of loan is great for businesses with sudden, unanticipated costs. A strong credit history is usually necessary to obtain a business line of credit.
Business Credit Cards
A business credit card is very similar to a personal credit card. Purchases are made as needed by the borrower and repaid monthly to the lender. This financing option is best for business with ongoing expenses, such as travel.
Equipment Loans
Equipment loans are exactly what they sound like: Loans given out strictly for buying equipment. Typically, the equipment is the collateral for the loan, and the repayment period matches the expected lifetime of the equipment. This type of loan is a great option for companies that want to own their own equipment, but it generally requires borrowers to make a down payment.
Merchant Cash Advances
A merchant cash advance is very like a term loan, except that borrowers do not make monthly payments. Instead, a percent is withheld from each credit or debit card transaction the business processes and used to repay the loan. Watch out for sky-high-interest rates. Some borrowers repay over 300% of the original loan.
Microloans
Microloans are loans of up to $50,000. They are offered by non-profits and interest groups. Typically they are awarded to the business with special needs, such as startups or existing business in poverty-stricken areas. While the loan amounts are small, they also carry low-interest rates and can be perfect for businesses that just need a little boost to move to the next level.
There are likely several types of business loans that would work for your business. You might even decide that more than one is appropriate for your needs. Use the information here as a jumping-off point for your research, and you will have a tailor-made loan procurement plan in no time!