Are you an entrepreneur in the process of starting your own business? Do you have trouble finding the money to set up an office, production system, and other elements to get your company off the ground?
If so, then you should consider the different types of business loans that are available to apply for. Some loans are designed for specific purchases, while others give you more options for your financial situation.
Before picking a loan, go over what exactly you need, how quickly you need it, and when you would be able to pay it back. With our knowledge of business and finances, you will find a loan that will help your company get on its feet.
Here are 10 types of business loans you can get.
1. Line-of-Credit Loans
One of the most common business loans for startups and companies just coming to life is the line-of-credit loan. With this option, your business has a way to deal with a stall in cash flow or a sudden emergency that requires extra money.
You can use this loan to pay for operational costs with setting up your business and producing your products and services. If you have a business cycle that requires having a certain amount of money during particular periods, then a line-of-credit loan can keep you prepared.
The bank where you apply for the loan will transfer the money to your business’s checking account and raise the amount to the highest limit of the contract. You will pay interest on the amount from when it is advanced to when it is paid back.
2. Asset-Based Loans
Different types of business loans give you certain options for what you can use for financing based on your situation. For example, an asset-based loan comes in handy if your company is growing faster than you were prepared for and you need working capital to keep up.
With this loan, you can secure a loan with a variety of assets, including inventory, accounts receivable, and equipment for your business and factory. You can even use raw products that still have market value in case you are short on finished products.
We recommend using inventory and accounts receivable as collateral because they can be renewed at different periods of the year. An asset-based loan also allows you to reduce restrictions on cash flow and have more time to address financial dilemmas.
3. Business Credit Cards
One factor that you need to consider when looking at loans is how it will affect your business credit. If you want to keep your credit intact, then we recommend using business credit cards for your company’s finances.
Unlike personal credit cards, these cards provide smaller credit limits, which gives you more freedom with what you can spend on. Depending on where you get the card from, you can also enjoy reward programs that can help you financially in the future.
The best way to use business credit cards is for daily expenses and purchases that can be paid off in the same billing period. This will allow you to avoid higher annual percentage rates that are associated with carrying balances month to month.
4. Business Lines of Credit
Are you looking for types of business loans that you can get from both a bank and an online vender? If so, then it’s best to apply for business lines of credit, which come with larger limits than business credit cards.
With business lines of credit, you can withdraw funds, repay them later, and then withdraw funds again. All you have to do is follow the credit limit imposed by the lender.
This option can be used for a variety of situations, such as managing cash flow, purchase inventory, and increasing working capital for short-term use. Business lines of credit also help with managing emergency expenses, and you can save money with this loan by only paying interest on what you use.
5. Term Loans
Some of you may have a budget that only suits short-term loans that won’t cause financial issues in the future. In this case, you can apply for a term loan for a number of small purchases or one large purchase.
Term loans provide a simple lending and payback process by giving you a sum of money that you repay over the course of several months or years. Most of these payments are the same, which makes planning your budget easy.
You are better off using the full loan as soon as possible because payments often begin immediately and you can make the most out of the loan. These loans are also available with both banks and online venders in case you are short on one or the other in your area.
6. Installment Loans
You can apply for a loan that gives you a certain amount of money right away in case you need cash for an immediate business need. One example is an installment loan, which gives you the full amount once you sign the contract.
The payments for this loan are equal for each month and cover both principal and interest, the latter of which is calculated each day of the loan. You also have the option to pay off the loan before the final day if you have the money to do so.
However, if you need more time, then you can agree on a period that can last between one year to several. You can also arrange quarterly, half-yearly, and annual payments in case monthly payments don’t work for your current budget.
7. Equipment Financing
Certain loans are designed for specific purchases, one of the most important being equipment for production and transportation. That’s where equipment financing comes in, as it can get you the tools you need to give customers what they need on time.
This loan can be used for buying equipment for creating products of different shapes and sizes, as well as vehicles for transporting them to different locations. You must be prepared to use some of this equipment as collateral for the loan.
Businesses that use equipment financing get to enjoy several benefits, such as lower interest rates and faster application processes than traditional bank loans. You can also qualify for this loan easily, which helps if you immediate due dates.
8. Merchant Cash Advance
Another way that your credit can play a role in your ability to pay loans is with merchant cash advances. This loan provides you a set amount of money that you pay back with a set percentage of your daily credit card transactions.
You can figure out how much you owe by multiplying the loan amount by a factor rate, which is usually between 1.14 and 1.48. We recommend this option for businesses with poor credit or short trading histories that don’t qualify them for other loans.
With merchant cash advances, you keep paying it off until you reach the total amount. This gives you more freedom in setting a repayment term in case a monthly basis doesn’t work for you.
9. Peer-to-Peer Lending
Your loan may not have to come from a bank or online venders, as individual investors can help through peer-to-peer (P2P) lending. You can use this loan if you are looking for an option with fewer eligibility requirements.
P2P lending requires a P2P marketplace, with popular options including Prosper, Lending Club, and Funding Circle. You also won’t need a higher interest rate to use this loan.
However, your investor must put down money for the loan before you can receive the funds. It may also take up to two to three weeks to receive the money, so stick with this loan if you have the time.
10. Personal Loans
You don’t have to apply for a technical business loan in order to use it for business purposes. One example is a personal loan, in which you use your own credit to provide your company the money needed for objectives and equipment.
Before applying to this loan, make sure that you have a reliable personal credit history so that your business doesn’t face financial setbacks. Personal loans also only allow a maximum of $100,000 to borrow, so make sure that your needs fit this range.
If the bank or vendor you usually go to doesn’t allow personal loans, then you’ll need to search online or around town for those that do. This is also a more suited option for startups and smaller companies.
Our Takes on Types of Business Loans
The types of business loans that fit your needs will depend on your specific needs and long-term financial plans. You’ll also need to consider how you will be able to pay for it and what pay period suits your budget.
Some loans allow you to use your personal or business credit to get your company the money it needs. Others focus on specific uses so that you can save money and apply for them with lower interest rates.
With these types of loans, you can get your company in shape to produce and make money while having an easy time paying your loans off.
For more of our business expertise, check out our guides today so that your company can make a name for itself.