If you’re searching for the best business loan options for your company, then don’t miss this article. Click here to discover 5 types of business loans to help finance your company.
It can be difficult to accept that your small business needs financial help. Know there are options out there, lots of options actually.
You’re not alone, according to the U.S. Small Business Administration, there are 28.8 million small businesses in the United States, and most of those businesses can use a little help.
Applying for a small business loan can be just what your company needs to get it back on track and ultimately profitable and successful. But first, you should know what your options are.
Here’s a breakdown of five types of business loans you can look into.
What is a Loan?
Before we get into the different types of loans available. It’s important you understand what a loan is exactly.
A loan is a common type of business financing. It essentially means you get a lump sum of cash upfront that you then have to repay with interest over a period of time, like AdMainBridging loans.
There are options for online lenders that offer loans up to $1 million and give you faster funding than banks. Loans are great because you can use that upfront cash to immediately fund your business. There are typically higher borrowing amounts and if you use an online lender over a bank, you can get your borrowed money almost immediately.
Of course, there is a downside, often loans require a personal guarantee or collateral, this could be an asset like real estate or perhaps business equipment that your lender can sell if you can’t pay them back. The cost of a loan can vary, often online loans tend to more expensive than the ones from banks.
Loans are great for businesses looking to expand who have good credit and don’t want to wait forever for funding.
Types of Business Loans
There are a lot of different types of business loans out there. Finding the one right for you all depends on your business’ needs and plan. Here are the top five most common ones.
1. SBA loans
An SBA or Small Bussiness Administration Loan, are guaranteed by the Small Business Administration and are issued by participating lenders that are often banks.
The SBA can promise up to 85% of loans for $150,000 or less and 75% of loans on more than $150,000. In 2016, the SBA’s average loan amount was $375,000. The administration’s maximum loan amount is $5 million.
If your company is looking to open a new location, hire new employees or perhaps refinance an existing loan, you might want to look into an SBA loan. These loan rates and terms are often more manageable than others.
SBA loans often have the lowest rates on the market with the long repayment terms so you can pay them back at a pace that works for you. The only downside is they’re hard to qualify and have a long and rigorous application process.
Small business loans are best for businesses with strong credit looking to expand or refinance debts, who can be patient with funding.
2. Business Lines of Credit
A business line of credit is different than a loan, which pays you a lump sum upfront and is repaid over a fixed amount of time.
A line of credit is something you can keep reusing and repaying and often as you’d like, as long as your payments are on time and you don’t go over your credit limit. Most lenders can allow you to repay your balance in full to save on interest costs.
A line of credit’s borrowing limits usually range from $5,000 to $150,00 and are often smaller than loans. These credits are typically unsecured so no collateral like real estate or inventory is needed.
You can get access to funds up to your credit limit with a business line of credit, and you only pay interest on the money you’ve taken out. Often a business line credit is a more flexible way to borrow money.
The only issues are it can carry additional costs like maintenance and draw frees, and often a strong revenue and good credit is required. A business line of credit is great for short term financing needs, managing cash flow, handling unexpected expenses or seasonal businesses.
3. Equipment Loans
If your company needs new equipment, an equipment loan might be your answer. This loan term is often matched up with the lifespan of your equipment, which then serves as collateral for the loan. Rates depend on the value of the equipment and the strength of your business.
This loan is great because you get to own equipment and build equity on it. You also can get competitive rates if you have a strong credit and business finances. The only issues are you may have to come up with your own down payment, and often the equipment can become outdated sooner than your financing.
This plan is best for businesses who want to own their equipment.
4. Invoice Factoring
If your business has unpaid customer invoices, that are paid in 60 days and you need the cash sooner. Invoice factoring might be right for you. You sell the invoices to an invoice factoring company and they would be responsible for collecting from the customer when the invoice is due.
This plan gives you fast cash for your business with easier approval than traditional funding options. But it’s often more expensive than other loans, and you can lose control over the condition of your invoices.
This plan is best for businesses with unpaid invoices that need cash fast and have reliable customers on long payment terms like 30, 60, or 90 days.
5. Invoice Financing
There’s also invoice financing which is similar to invoice factoring but instead of selling your unpaid invoices to a factoring company, you use these invoices as collateral and get a cash advance.
Invoice factoring is technically not a loan, as you’re selling your invoices at a discount to a factoring company in exchange for a lump sum of cash. The factoring company then owns the invoices and gets paid when it collects from you customers typically in 30 to 90 days.
This is great because it gives you fast cash, and your customers won’t know their invoice is being financed. The only issue is it’s more expensive than other plans, and you’re still responsible for collecting the invoice payment.
This is best for businesses looking to turn their unpaid invoices into fast cash who also want to maintain control over their invoices.
Find Your Small Business Loan Today
Now that you know about the different types of business loans and options out there, apply for the loan that’s right for your business.
It all depends on your needs, how strong your credit is, and how quickly you need the cash.
For more information and tools to help your small business, check out our blog.