In the world of business loans, there are plenty of options. From the lender you choose to the loan amount you seek, there are all sorts of floating variables.
But, before ever choosing a lender or determining your loan needs, it’s important to understand the loan options that are available. Business loans come in all shapes and sizes and you’ll want to choose the one that’s most ideal for your company.
A quality lender will help determine the best option for your business. But, it always helps to have an understanding before jumping into the process.
Keep reading to learn about the top 5 most common business loans.
1. Installment Loans
Business installment loans are much like personal loans. You make monthly payments that go towards principal as well as interest. These loans can be used for a variety of business needs.
The interest rate depends on your credit history as well as the loan amount. To find the best installment loan, shop around. Big banks, online banks, and local institutions all offer different interest rates and loan terms.
In most instances, there is no penalty for early payment.
2. Line-of-Credit Loans
If you’re a small business owner, the line-of-credit loan is a suitable option. But, big businesses can also benefit from this loan.
Line-of-credit loans are ideal for emergency situations. If you’ve hit a period of stalled or slow cash flow, this loan may come in handy.
Lenders will approve this type of loan for:
● Paying operating costs
● Purchasing inventory
● Business cycle needs
Line-of-credit loans shouldn’t be used for purchasing real estate or equipment. After getting approved for this type of loan, the lender will usually deposit the money into your business account within a few days.
These loans usually have low interest rates. You will pay interest each month. While there is no set time to pay the principal balance, making monthly payments is best.
Many line-of-credit loans last for a year. For an annual fee, the loan can be renewed. But, each lender has different terms.
Be sure to read the fine print!
3. SBA Loans
Small Business Administration (SBA) loans are offered by most banks. These loans come with a variety of terms, ranging from 10 years to 25 years. The loan term will depend on your use of the loan.
If you need the loan for equipment purchases, expect a shorter term. But, more expensive purchases such as real estate, can offer a 25 year term.
The SBA 7(a) loan can be approved up to $5 million. So no matter how big or small your loan needs, an SBA loan is worth considering.
SBA loans offer a variety of benefits including:
● Long repayment terms
● Low interest rates
● High borrowing amounts
With these loans, the one drawback is meeting qualifications. The application process is lengthy and your business must be in tip top shape.
4. Equipment Loan
Equipment loans are specifically meant for purchasing business equipment.
While you can purchase equipment with an installment or an SBA loan, this type of loan is best if you’re looking to specifically purchase business equipment. This loan also allows you to outright own all equipment that you purchase.
With this type of loan, the equipment serves as collateral. The interest rate you’ll get on the loan depends on various factors, including credit history, business strength and the equipment's value.
With this type of loan, you can find a variety of competitive rates. If you have strong business finances and credit, this is a loan to consider.
In today’s world, new equipment is released every month. The one drawback to this loan is that you may be stuck financing outdated equipment.
5. Business Credit Card
A business credit card is just like a personal credit card. You use and repay the card as necessary. You will have set monthly payments as well as an APR.
Getting a business credit card is ideal for ongoing expenses. Use a business credit card to pay for utilities, office supplies, and travel expenses.
With a business credit card, collateral isn’t a necessity. You can also earn rewards on your purchases.
When choosing a credit card for business expenses:
● Look for low annual fees
● Pay attention to rewards programs
● Shop around for the best lender
Business credit cards make owning a business much easier, especially when it comes to everyday purchases.
There are very few businesses that don’t use financing to grow their business. No matter if you’re a new start-up or a long-time business owner, getting a loan can make company finances much less stressful.
Before applying for a business loan, know your needs. Understanding your business needs can help determine the best loan option for you. For further discussion, reach out to a lender to discuss loan options.