It is well known that most small businesses have limited resources and require loans to help them expand or introduce new operations.
Before applying for a business loan, it is important to know which one works for you since there are many types of these loans.
This can be aided by proper planning to determine whether your business needs the loan and how the new commodity or the expansion project will help you to repay the loan.
This is particularly important with massive loans that could threaten the operations of a business if it does not yield the desired impact or boost in its income and profits.
Here are some common types of business loans;
These are loans where a bank or financial institution allows you to withdraw more money than you have in the account.
A business can transact up to the credit limit placed on the account.
The payment plan depends on the type of account you are holding an agreement with the financial institution.
These loans are suitable for short term needs, fast to arrange and accrue no charges if you pay the amount earlier than expected.
Failing to pay back within the agreed time could hurt your company’s credit score. Overdrafts are somewhat similar to the business lines of credit loans.
These provide access up to a certain credit limit, and the interest is paid for the amount you have borrowed.
These are the common loans where the business gets a lump sum and repays the amount over a predetermined amount of time in instalments.
Term loans vary greatly with what they are intended to do as specified by the lenders.
The advantage of these loans is that you get the whole amount and this makes it easier to plan on what to do with it.
They also offer you a large amount upfront, and you can get this amount faster if you opt for the online lenders.
However, these loans are secured and require some form of collateral. Their costs also vary depending on the lender and always be careful to avoid expensive loans.
These are loans that are given to business to finance the purchase of certain equipment. The term of the loan is connected with the lifespan of the machinery.
The equipment is used as collateral for the loan, and the rates depend on the impact of the machine on the production process, its value and financial strength of the business.
The good thing about these loans is that you own the machine and build equity in it.
The downsides are that you might have to pay a down payment and there is a probability of the machine ageing before you finish paying up the loan.
Some common types of business loans include;
• Business credit cards.
• Invoice financing.
• Merchant cash advances.
• Invoice factoring.
• Personal loans.
We have seen here that businesses have various options when it comes to sourcing for finances and all you need to do is to find the most suitable one for yours.
Always analyse the financial viability of the loan for your business since too much debt can easily bring down a company.
If you’re looking for some business loan options from a trusted non-bank lender look no further than LoanONE.
Visit our application page and see if you qualify today.