Six Types of Business Loans to Compare
Do you have a strong interest in applying for a business loan? Do you have reason to believe that this is the best way to improve your company’s finances? Are you ready to take the next step forward?
As excited as you may be about this, here’s something you must remember: you can’t pull the trigger until you compare the types of business loans.
Once you know the pros and cons of each type, as well as what the application process will entail, you can move forward in a more confident manner.
So, with all that out of the way, let’s examine some of the many types of business loans:
1. SBA Loan
As you can tell by the name, these loans are backed by the Small Business Administration.
If you have been turned down by traditional lenders, this may be the next option to consider. Thanks to the backing of the SBA, lenders don’t take on nearly as much risk. As a result, they are more likely to provide financing to companies that meet all the necessary requirements.
2. Term Loan
Just the same as a traditional bank loan, a term business loan provides the opportunity to take on a set amount of cash upfront.
Once you take the money, you are then required to pay it back over the life of the loan, which is typically one to five years.
3. Equipment Financing
Are you interested in buying new equipment for your company? This often comes into play in the construction and restaurant industries, for example.
With equipment financing, you receive the money you need to purchase the equipment with cash. From there, you are required to pay back the total amount of the loan, in addition to interest.
4. Business Line of Credit
A business line of credit is not exactly the same as a business loan, as you are only borrowing the money that you need at the time of the purchase.
For example, if you qualify for a $100,000 business line of credit, you can borrow up to $100k. However, you are not required to take all of this money. You can draw from the account as often as you would like, much the same as a credit card.
The benefit of a business line of credit is that you only pay interest on the money you borrow, not the entire amount (as you would with a traditional loan product).
5. Invoice Financing
With this approach, you can sell your outstanding invoices to a lender. From there, the lender provides a large amount of the money upfront, holding the rest until the invoice is paid in full.
The only potential downfall of invoice financing is that you will pay a factor fee, meaning that you won’t receive all the money that is due to you. A factor fee is typically in the three percent range.
6. Small Business Startup Loan
It can be a challenge to receive a loan when your company has only been in business a short period of time. This is even more so the case if you have yet to open your doors.
This is where a small business startup loan comes into play. This type of loan is designed to provide startups with access to the capital they need to get up and running.
How Will You Choose?
With so many options to consider, all of which have a number of benefits, it can be a challenge to decide what type of business loan is best for your company.
There are many things you can do to ease the stress and make a decision, including the following:
- Speak with more than one lender about your options
- Focus on how much money you will spend over the life of the loan
- Learn more about the finer details, including the interest rate, repayment term, and eligibility requirements
So, there you have it. These are some of the most common types of business loans. Although you may find others, there’s a good chance that one of these is just what you have been looking for.
As long as you take your time, compare each loan, and know what you’re looking for, you should be able to make a decision you are happy with.
What are your thoughts on these types of business loans? Does one standout above the crowd for you? Share your thoughts and personal borrowing experiences in the comment section below.