There is nothing better than being your own boss. However, creating a successful business can be quite challenging in this day and age, especially if you lack the funds you need to get your business where you want it to go and maintain its success.
One of the most common ways to expand and improve a business is by getting loans from financial institutions or credit unions. That extra influx of cash that you get from a loan can do wonders for a small business and can propel it to the top. However, when getting a loan, it’s important to do it right and get the type of loan that will only benefit you and your business and not harm it in any way. If you are considering getting a loan, keep reading to learn about the seven types of business loans you can get to expand your business and make it what you want it to be.
Business Lines Of Credit
Business lines of credit are loans that have a revolving credit limit. You can either use up the entire amount you’ve borrowed or a portion of it, depending on how much you need. Regardless, you only pay interest on the amount of the loan you have used, and the amount you haven’t used is still available to you.
You can either get a secured or an unsecured line of credit. A secured line of credit is a loan for which you will need to provide collateral. On the other hand, you won’t need collateral for an unsecured line of credit; that’s why it is the preferred option among the two. Here, you can read how to get a business line of credit, how it works, who it is for, and where to apply for it.
Term Loans
Term loans are traditional loans that you can get from any financial institution. With a term loan, you receive an agreed-upon amount of money from the lender, which you need to repay. Usually, term loans are repaid monthly with fixed payments which include a portion of the principal amount plus interest. You can use a term loan for whatever your business needs, like operational costs, machines, office space, etc. You can also decide whether you need a long-term or short-term loan.
Microloans
If you’re in need of a smaller amount of cash, getting a microloan might be a step in the right direction for your business. With microloans, you can get a loan of up to $50 000 or less. However, you might need to offer collateral in return, like a business asset, real estate, or personal assets, depending on the lender you get your loan from.
SBA Loans
SBA or Small Business Administration loans are government-backed loans that have a small price tag compared to other types of loans. Since they are government-backed, they have lower interest rates and fees, which can be great if you don’t have sufficient funds to cover higher monthly interest costs. However, these loans have a lengthy approval process, and you might have to wait up to three months to get approved and receive the funds. So, if you don’t need the money right away and can afford the long wait, getting an SBA loan is the right choice for you.
Commercial Real Estate Loans
Businesses usually get commercial real estate loans, i.e., commercial mortgages, when they need to purchase new or finance existing real estate, like office buildings, warehouses, etc. Commercial real estate loans are similar to term loans and allow you to either purchase new business property, expand a current one, or refinance an existing loan you have for a property your business already owns. Investing and buying real estate can be quite lucrative, so keeping up with the global real estate market trends can prove quite beneficial for you and your business investments.
Equipment Loans
Equipment loans can come in quite handy for you if you have a business that utilizes expensive machinery and equipment in everyday operations. You can use equipment loans to finance new or existing machines, vehicles, equipment, etc., that you need to have to stay in business. However, it is worth noting that these types of loans require collateral. In most cases, the equipment or machines you purchase are held as collateral which the lender can take from you if you default on your loan.
Invoice Factoring and Financing
One of the most common issues small businesses face is receiving payments on time from customers or business partners. If you find yourself in a similar situation, it will help to consider invoice factoring or invoice financing. It allows you to sell unpaid invoices to a lender and get a portion of the invoice upfront. You can also use invoice financing to put up unpaid invoices as collateral and get a percentage of the overall amount you are owed in advance. However, before you decide on the type of loan you want, you must first evaluate what your business needs, calculate how much you can afford to pay per month for a loan, and research the terms, fees, and interest rates lenders in your region offer.
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