6 Different Types of Loans You Should Consider in Funding Your Business

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6 Different Types of Loans You Should Consider in Funding Your Business
6 Different Types of Loans You Should Consider in Funding Your Business

Starting a business may be very difficult, especially in today’s cutthroat market. Challenges and trials can start before even entering the market, going all the way back to how to fund your business. If you are able to get a loan, you may think it’s easy.

It is not just a matter of applying for a loan with monthly payments and interests. It is choosing the correct type of loan for your business needs. 

Here are 6 different types you should definitely keep in mind when looking to fund your business to cater to your needs. 

  • Business Term Loan

This is the traditional standard type of loan. With this loan, you can get anywhere between $1,000 and $500,000, which is enough money to fund smaller start-up businesses, at first. Most banks and lenders will allow a very lenient and flexible period in which you can pay back the loan, this will usually be a period of 1 to 5 years, though it may differ from one lender to another.

The interest rates are generally between the range of 7% and 30%.  These loans are used for any purpose at all and they can get approved within a few days. 

  • Small Business Loans

Small businesses a Small Business Administration in the bank dedicated just for them. They can fund up to $5 million in loans for businesses. However, you should be careful when reviewing the fees associated with this type of loan. The financial wizards at EBroker explain the importance of considering other business finance options, seeing as how loan fees can end up taking a toll on your finances.

So, the more transparent the loan terms are and without hidden fees, the better. This will be better than opting for a small business loan that gives you a small amount of money yet charges you hidden fees. The interest rates can be as low as 5% and go up to 13%. The better your credit history, the lower the interest may be. Also, the process can take weeks or even months to process.

  • Business Line of Credit

This type of loan is in many ways similar to a credit card. Basically, the way this type of loan works is by giving the business a specified amount of credit, and then you will be asked to repay the amount back. Just like a credit card, once you pay back the loan, you are given another amount.

However, the penalties for missing payments can end up being very heavy and applying for this type of loan may require you to give the lender collateral. This loan is not easily processed and takes time, but they are perfect if your business has a less than perfect credit history. 

  • Invoice Financing

Here, the rules are somewhat different. With this type of financing, you are looking to sell your uncollected but confirmed client invoices, which you do in exchange for an advance. This can be anywhere between 60-90%. Invoice financing receives fast approvals which are perfect for businesses still struggling to grow. It is also known to solve cash flow issues and any business can get it. However, repayment charges may actually be higher, especially the processing fees

  • Merchant Cash Advance

This one is extremely complicated and it involves your credit card. You will be given an advance in cash, which is usually a lump sum, and that is done in exchange for your daily transactions from your credit card.

This type of financing option is suitable for businesses that have bad or poor credit score history, even for those that have a short trading history altogether. However, the interest rates here are very high. Though, on the other hand, they are approved fairly quickly and do deliver lump-sum amounts. 

  • Equipment Financing

Most types of loans can be used to purchase equipment for your business, however, using a dedicated equipment loan can be better. This is because this type of loan uses the assets you buy as collateral against the loan itself.

This removes the traditional worries that may be attached to other loans. However, you may end up paying more than your equipment’s worth, due to depreciation and your equipment could be obsolete by the time you finish paying. On the bright side, the funding may take only days to get approved.

Considering all the different types of loans when seeking funding for your business is absolutely important. This can end up saving you time, money, and a lot more. Your business can either rise or fall, depending on your loan. So, pick cautiously and remember, a small business loan may include a lot of hidden fees so do your research.

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