Whenever looking for debt financing sources for your business funding, multiple options can turn up. These options include your credit cards, banks, or any commercial lender. Based on your requirements, you do not have to point towards a specific opportunity to choose as a lender can guide which one suits you best. Whether you are starting fresh or need to expand, you need stable cash flow to do it. A business loan is the best way to have all the requirements covered. Some of the best lenders offer different loan options for your business, and some may also provide online loan facilities.
However, you should know those types of loans your business can benefit from, and it will make your choice more comfortable as well as providing you understand of what your lender is offering. We will take a brief here about the different types of loans that benefit your business.
1. SBA LOANS
SBA or Small Business Loan is a facility provided exclusively for small businesses. The loan facility by Small Business Association backing ranges from $5000 to $5 million to finance a small business. Banks and online lenders usually offer the SBA loan. The government backing enables lower rates that guarantee lenders they will get their money back. You can utilize SBA loan for any business purpose with lower APR rates and repayment terms. However, the process of application is time-consuming and longer than other loan types.
One of the significant benefits is its Interest rates which may vary between 5% to 13%, and have a short and long term up to 25 years’ monthly payment plans.
The application process of SBA loans takes a long time, and it ranges from 3 weeks to months. It also requires a strong credit history.
2. BUSINESS LINE OF CREDIT
A business line of credit is a loan type that a lender offers to a borrower to draw at any time. These loans have two classes that included fixed or revolving. Revolving means they work in the same way as credit cards. The pool replenishes once the repayment of the loan has completed. This type has flexibility, and you can hold it until you need it. This loan type proves best for businesses that need immediate cash help at any time.
LOC is a flexible loan type that has accessibility for any time once approved. In this type of loan, collateral is not necessary but has more affordability if you have one.
Most established businesses will qualify for LOC. It is not the best choice if a large sum of money is required. LOC has higher interest rates.
3. TERM LOANS FOR BUSINESS
This loan type relies on your credit history, average income, and financial health. A business term loan calculator will help you determine the amount based on your financial account. This loan type is a traditional business loan that you can borrow on a lump sum basis ranging from $1000 to $500,000. You can repay it over the next several years. The repayment period is between 1-5 years, while some lenders offer both the longer and shorter term. The average interest rate is 7% to 30% and does not require collateral.
It can use for any business, and the predictable repayment is another plus point. It takes a couple of days for approval, and large amounts can borrow.
Term loans usually penalize for early payments, and poor credit score may affect loan rates and amount
4. SHORT TERM LOANS
Short term business loans have almost the same requirements, but the repayment time ranges from 3-18 months. Usually, online lenders provide short term loans for business owners on short notice. Depending on the demand and emergency, a short term loan can give an immediate burst of cash. It is a convenient option to have that can fund in a matter of hours. These types of loans used for equipment or to fill in the gap in cash flow.
Short terms loans take little time to qualify like one business day. Another plus point is that business owners with low credit history can also avail of this loan type.
It has a much higher interest rate as compared to SBA or term loans and has a short period to repay the debt.
5. MERCHANT CASH ADVANCE
A merchant cash advance is a loan type option that gives you a lump sum amount in exchange for daily transactions of your credit cards. There is no fixed repayment term, and you have to pay until the completion of the total amount. The time it takes for repayment depends on the transaction percentage and how much you make daily. An average repayment term is 8-9 months that can go as low as four months or high as ten months. A merchant cash advance is suitable for businesses that have little credit history and cannot apply for any other loan. Loan amounts can reach up to $250,000 max, and approval takes mostly a day or two.
A merchant cash advance is suitable for businesses that have low credit history and cannot apply for any other loan type. Its approval time is short, and You can have a lump sum amount whenever needed.
It has a very High-Interest rate as compare to other loans available in the market.
6. EQUIPMENT FINANCING
Equipment financing is yet another suitable loan type if you specifically seek funds for expensive equipment. Equipment can be in the form of office furniture, production machinery, vehicles, and any other. This loan type covers the cost of equipment and sometimes extended by the seller also. With this loan type, the equipment becomes collateral. In case you fail to pay or goes default, the lender recoups the loss by taking the stuff back. That makes it an excellent choice for new businesses with lower credit history.
For equipment financing, there is no collateral needed, and most of it has lower interest rates, and the exact prices depend on the borrower and the situation.
Equipment financing only available for businesses looking to buy or rent any equipment for their needs.
Acquiring a business loan becomes essential when you need a sudden burst of cash flow. The options mentioned above are some of the most widely availed loan types recommended for small to medium business financing. The pros and cons mentioned will also let you decide whether a sample is suitable for your requirements or not. Alternatively, lenders can also guide you regarding which loan type suits the situation. Depending on your business, you can take maximum advantage of these loan types and run your operations smoothly. Considering all the factors, you are sure to pick the best business loan option for yourself.