There are a lot of reasons why small businesses need extra financial help apart from the revenues that they are already generating. It could be an urgent order that they have to fulfill for an emergency that came up suddenly, and the business was not equipped to handle it. It could be to replace some of the equipment that you’ve been using or to maintain it. It could also be so that you can get the latest and state of the art equipment and tools so that you can keep up with the competition. There are seasonal changes too, like having a low inventory and Christmas or other holiday seasons are on top of your head. There are political aspects to consider as well as weather changes and a whole lot of other reasons why an entrepreneur has to go out looking for external sources of income.
There was a time when the only option for business owners was the traditional loan system, i.e., the banks. However, now there is a wide variety of options that they can choose from. On the one hand, it is a blessing for entrepreneurs, but on the other hand, it is a little bit confusing. What option should they go for, and which one is the best one for their specific needs?
Here we are going to list down some of the types of loans that are suitable for small businesses. Read on to find out which one is more suitable for you.
Types of Loans
The problem is that there is a wide variety of loans that are available and as an entrepreneur, you have to know which one applies to you so that you can properly use it and not get stuck. It doesn’t matter how long you have been doing business or how many customers you have or how good or bad your credit score is. You could have bad credit, and you can still get the best business loans for bad credit. The terms and conditions will change, and you will have to make sure that you pay it back on time so that your credit score doesn’t turn even worse than it was before.
For this purpose, you need to make sure that you know which type of business loan you are looking for. Here we are going to discuss seven types of loans that a small business can take advantage of.
1. Installment Loans
Installment loans are best for all types of small to medium businesses. They are also one of the most common types that businesses go for. Some examples of installment loans are mortgages and vehicle loans, among others. When you take an installment loan, you are given a specific period in which you have to pay back the loan in installments that are defined before you take the loan. The payback installments are made every month, but the schedule can change according to the lender’s terms and regulations.
2. SBA Loans
SBA loans are suitable for small businesses that have a good credit score. You should go for the SBA loan, especially if you are looking for a non-traditional alternate that offers competitive advantages and terms. The SBA loans are approved by the Small Business Administration and only cater to small businesses, as is evident by the name. They don’t charge a lot and are backed by the government. The administration has SBA approved lenders that provide you with the funding that your business requires.
3. Business Lines of Credit
If you ever feel the need for funds on-demand or a flexible credit option, then the business line of credit is a perfect choice. Think of it as a business credit card. Your business will be given a credit limit, and you will be able to spend the money up to that limit. You can either take that money all at the same time or withdraw it multiple times as needed. The good thing here is that the interest will only be applied to the amount that you have used.
4. Short-Term Loans
These are the loans that businesses should go for if they are stuck in a bad situation, and their credit scores are not as good as they would want. These loans have a short payback time. Usually, the payback period is one year, but according to the lender, it could be a few months or even a few weeks.
5. Equipment Loans
If you want to purchase the latest gadgets or equipment for your office and you don’t want to or can’t pay the hefty monthly installments, then an equipment loan is what you should go for. As entrepreneurs, you need to keep up with the latest technology and take advantage of it before the competition so that you can get a competitive edge. Or, you may have an increase in sales and want to purchase more equipment so that you can fulfill the rising demand for the products. Another reason why a business should go for an equipment loan is when your equipment or machinery is outdated.
6. Invoice Financing
This is the type of loan that you should go for if you have a lot of unpaid invoices, and that is resulting in a drastic shortage of revenue. There are two basic types of invoice financing loans. One is known as invoice factoring that involves a limited percentage of the invoices being paid to the business by the lender. As invoices are received, the lender subtracts the charges and interest from the payment, and the rest is paid to the business. The other is invoice discounting. In this type, the business collects the invoices and pays the lender back with interest.
7. Merchant Cash Advances
If you want to get your hands on urgent cash for any reason like purchasing supplies or inventory, then go for the merchant cash advance. You will get the money that you want in return for a percentage of your future credit card sales.
If you are a small business owner, then you must have faced tough situations where you look for an outside source of help. These are some of the most popular types of loans that can help you out in your time of need without putting you in additional stress.