Did you know that 30 percent of businesses fail because the owner runs out of money?
As a small business owner, it’s extremely important your business has the financing necessary to succeed. Although not many owners know this, there are plenty of business loans available to them.
If you’re contemplating a business loan, you came to the right place.
Read on to learn about the different types of business loans available.
Term loans are some of the most common and straight forward types of business loan. When you get approved for a business loan, you will get a lump sum of money upfront and will repay the amount plus interest in equal installments.
Although business owners can apply for a term loan via traditional banks, online lenders can provide faster and higher funding amounts.
Term loans, however, might require collateral, and borrowers should have good credit. Business owners can also qualify for a revenue based term loan.
This type of loan is a great option for businesses looking to expand.
Because these types of loans are backed by the Small Business Administration, they offer some of the lowest interest rates of all business loans. Creditworthy business owners can borrow up to $5 million and enjoy long repayment terms. Depending on how much they borrow, business owners can pay back the loan in seven, 10, or 25 years.
If SBA loans sound too good to be true is because they have long waiting periods, an extensive application process, and not many borrowers qualify.
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Business Line of Credit
With a business line of credit, borrowers have fast access to cash for short-term financial and unexpected expenses. The lender will provide you with a credit limit, and you only have to pay interest on the amount you borrow. Think of this type of loan similar to a credit card.
This type of loan is not meant as a long term solution for borrowing. It works best when you only use it for unexpected business expenses.
The downside is business owners might have to pay additional fees such as maintenance and other additional costs. In order to qualify for this loan, they also need a strong credit history and revenue.
Many business owners simply need a loan to replace or expand their equipment — equipment loans serve this purpose. With equipment loans, they’re able to buy the equipment needed to continue growing the business.
The terms of the loan will often match the life span of the equipment. This loan is a great option for those business owners who only need the loan to purchase new equipment, and don’t want to explore other loan options.
Keep in mind you will have to use the equipment as collateral. Often, this loan might require a down payment.
Types of Business Loans: The Bottom Line
Now that you know more about the types of business loans available, it’s time you decide which one is right for you.
The types of business loans depend on the needs of your business. You can choose between equipment loans, line of credit, SBA loan, and term loans.
Want to learn more finance tips? Check out the rest of our blog.