Establishing a business is often expensive, and so is expanding it. Regardless of where you are in your business’s life cycle, a business loan can help you begin or meet particular needs along the way. When looking into financing options, it’s important to know the various types of loans available to small businesses so you can choose the best one for you.
Term loans are ideal for business owners who have great credit and want substantial funding. Applying for this loan is an extensive process, and big banks often approve some 25 percent of applications. Among many others, two common uses of term loans are purchasing real estate and renovating commercial spaces.
Short-term business loans provide quick cash for many different purposes – for instance, pay for emergency costs or plug holes in cash flow. One big advantage of these loans is that you are usually not expected to have good credit. They call for less paperwork and are known for high-speed processing as well, so you can feasibly get the money as you need it.
Secured loans are a great option for businesses looking for the lowest rates, those with poor credit ratings, or those who want funding to fix their credit. Small business loans are generally secured by particular assets, such as inventory, equipment, invoices, and the like. In certain cases though, a loan may be secured by personal property if it is the only remaining option to acquire financing.
Equipment loans can be a viable option for both new and established enterprises, financing almost any business equipment, even motor vehicles. New businesses are qualified for these loans because, regardless of the business’ success or failure, the loan will be secured against the equipment. Loan rates are usually reasonable and differ according to the borrower’s credit rating and overall financial situation.
Invoice financing is a type of short term loan where invoices serve as collateral. It’s often used to fix cash flow problems due to unpaid invoices. Such type of loan is offered only to businesses with invoice-initiated payments, making it commonplace for B2B businesses. If your cash flow issues are due to your clients pay at different times, you can attain stability with the help of this loan.
Purchase Order Financing
Purchase order financing can offer a great lending opportunity for start-ups with large volumes of orders but insufficient capital to fulfill them. In such cases, similar to invoice financing, the loan is secured by the purchase order. The moment you get a purchase order, the lender will pay the supplier to produce as well as deliver the product to the buyer. The customer pays the lender once delivery has been accepted.