Business Loan Types All Entrepreneurs Should Know
This BLOG On Business Loan Types All Entrepreneurs Should Know Was UPDATED And PUBLISHED On October 1st, 2019
Navigating the world of business loans can be confusing because there are so many different types.
- With personal finance, lending tends to be straightforward and mostly dependent on a borrower’s credit history or income
- Business loans require a lot more than a good credit score
- They can also give entrepreneurs a little more flexibility if their business is just starting up
- In the following paragraphs, we are going to discuss and explain some of the most common business loan types that your organization may want to try for a funding drive
In this article, we will cover and discuss Business Loan Types All Entrepreneurs Should Know.
A popular type of financing that is used with a brand-new company is equipment financing. This type of loan is unique to the business world. Equipment financing is most commonly used in industries that require specialized equipment, such as restaurants, manufacturing, or transport companies. The loan structure allows the organization to finance new equipment purchases and pay manageable monthly payments. The loan is backed by the equipment, making it less risky for lenders.
Another common way businesses secure funding is through a loan structure called factoring. This type of loan is also referred to as invoice funding. Companies that have a strong and consistent history of timely payments through their invoicing structures can use that potential cash flow to secure funding in a pinch. Lenders will sometimes consider a business’ accounts receivable as an asset, and turn this potential revenue into collateral for a loan. Factoring is sometimes used for businesses that get a sudden, large order and need a capital injection to increase production capabilities.
Merchant Cash Advance
A merchant cash advance is another way a company can secure fast funding. To qualify for a merchant cash advance, a business must have a solid history of daily credit or debit card payments from customers. Lenders that offer merchant cash advances look at your company’s daily credit and debit card sales and tie the loan terms to that amount. Once the loan application is processed and approved, the lender takes a portion of the credit card and debit card daily revenue as repayment.
Business Line of Credit
Entrepreneurs can also take out a business line of credit to help raise capital for various expenses, such as payroll, new equipment, or expansion plans. Lenders like quickloansdirect.com offer a quick loan approval process for a business line of credit. Instead of scrutinizing the company owner’s personal credit, the lender may put more value on how the business is performing in its industry for this type of borrowing. If you have poor credit but a booming business, a business line of credit may be right for you.
There are also a variety of smaller online lending operations that offer quick cash injections to businesses. These online lenders usually have options for borrowers who may have been turned down by a traditional bank. Online loan companies usually offer smaller sums of funding, such as $10,000 to $100,000. Borrowers can also get instant approval since many of these lenders have online applications that are easy and fast to fill out.
Crowdfunding Business Loan Types
If you have a great idea for your business’ expansion or a concept for a new, revolutionary product, you may want to look into crowdfunding instead of a traditional loan. You’ll need to create a crowdfunding campaign page with a compelling write-up that details why you need funding. With crowdfunding, you can also set the terms.
Credit Card Business Loan Types
Business credit cards are also great options for growing companies that need to have access to big purchasing power for supplies and inventory. Usually, in order to qualify for a business credit card, an entrepreneur will need to have a strong credit score. The bank issuing the credit card may also need additional details about the size of the company, its revenue, tax identification numbers, and any debt owed by the business.
SBA Business Loan Types
The federal government also offers its own type of specialized funding through the Small Business Administration. An SBA loan may be the right option for a new, growing venture. Companies can take advantage of some of the different programs from the SBA for certain industries, economically-disadvantaged areas, or minority-owned businesses. You may qualify for much lower rates and better terms with a loan backed by the SBA.
The last source of a business loan is through the business owner’s own personal credit. It’s always possible to take out your own personal loan to cover costs for an expanding business. To get approved for a personal loan, you’ll need to show a positive credit history and include a source of income from your business. There are many different possible lenders for personal loans, such as banks, online loan operators, or even family and friends.
It’s important to learn about the various options out there for business owners who need fast funding. You may need to take out many different types of loans throughout the life of your company to help it reach its goals and grow.