Small business loans come in handy when you want to expand your business or sort out some emergency expenses. There are several forms of small business loans available, each different from the next.
Before you apply for a small business loan, you should understand your options. The following 14 types of business loans are available for businesses.
This is a form of business financing whereby you get a large sum of money upfront. You then repay the total sum with interest over a predetermined period.
Numerous online lenders offer up to 1$ million. They also process the loans much faster than banks.
Banks and other lenders offer small Business Administration (SBA) loans. They are pretty lenient when it comes to the repayment period since it depends on the money’s intended purpose. i.e., if you take a loan to buy equipment, the payment period can range anywhere from seven to ten years. Likewise, you can take up to 25 years to repay a real estate loan.
Business Line of Credit
A business line of credit loans allows you to borrow money up to your credit limit. They require no collateral, but you have to pay interest on the borrowed amount.
As the name suggests, equipment loans are meant to help you buy equipment for your business. Their repayment period typically depends on the lifespan of the equipment.
If, for example, you have pending invoices from your customers, and you need the money urgently for other business-related expenses, you can consult an invoice factoring company.
These companies buy the invoices from you for a lower amount, then collect funds later when the invoice is due.
Invoice financing is somehow similar to invoice factoring, the only difference being that instead of selling the invoices, you use them as collateral to get a cash advance.
Merchant Cash Advances
Merchant cash advance loans get you a sum of money upfront. However, unlike term loans that allow you to repay the loan through a fixed monthly payment, you make payments either by withholding a percentage of your daily debit and credit sales or by fixed weekly or daily withdrawals from a bank account.
These forms of loans have the highest interest rates.
Since banks don’t offer loans to new businesses, entrepreneurs who want to finance their startups have to get a personal loan.
According to lantern credit,to qualify for a personal loan depends on your credit score. You also have to have good credit.
Business Credit Cards
These are revolving lines of credit. Business credit cards allow you to draw from and repay funds as needed. What is required of you is to pay the minimum monthly payments.
Also, you are not permitted to exceed the credit limit. These loans are mainly used for financing ongoing expenses such as office utilities and travel.
Microloans are small loans, usually $50 000 or less. NGOs and mission-based lenders mainly offer them.
Crowdfunding entails raising money from a group of investors. Startups mostly use them. Startups pitch their idea to potential investors, who then donate the funds if the pitch appeals to them.
When it comes to crowdfunding, it is crucial to have an excellent pitch to get funds.
Commercial Real Estate Loans
Commercial real estate loans are used to buy or upgrade existing real estate. These loans are generally long-term and have a repayment period ranging from 10 to 30 years.
Small Business Grants
Governments and various NGOs usually offer business grants to new and existing businesses promoting economic growth in a particular area. They are also offered to disadvantaged people.
To qualify for a small business grant, you must meet the grant's criteria, then pass through a vetting process. You don't have to repay the funds.
Business overdrafts are lines of credit made available by your bank when you withdraw an amount greater than your account balance. They are suitable for seasonal businesses since they can still make payments, even when their account balance is zero.
There are over 582 million entrepreneurs in the world. Most of these entrepreneurs use small business loans to expand their businesses. These loans come in many types, so you can’t fail to find one that suits your preference. Good luck out there!
MK Akram is the Lead Content Marketer at Globex Outreach, mainly responsible for guest posting services. He creates content strategies that help clients connect with their target audience and build strong relationships.