Every business starts hunting for financing options as they start progressing. Some are developing a new product while others need money to purchase machinery. Thus, they are exploring the available financing options that won’t cost them an arm.
The unavailability of finances can halt business operations. Therefore, seeking loans at the right time becomes super essential. At the same time, picking an option that suits your financing requirements is equally crucial. Are you wondering which loan to acquire? It is difficult to choose from countless options. So, have a look below to know the 7 types of loans suitable for your business.
Are you having cash flow problems? If yes, then there is no point in getting your hands-on commercial loans. Microloans come to your rescue when you have low financing needs. Usually, to cough up money for daily expenses. Hence, microloans offer to finance up to $50,000, which is more than enough to foot your business bills.
It works like a standard loan, you have to pay the interest along with repayments, but it has feasible requirements. Generally, if you are seeking financing for a low amount, you don’t have to hand down collateral. Your credit score would be enough to qualify for the loan.
2. Small Business Loans
It is quite difficult for small businesses to get their hands dirty on loans because paying interests is not a piece of cake. Small business loans are designed to accommodate them in the best possible way. Even though commercial banks and investors give these loans, but due to government intervention, the interest rates are low. Hence, making financing easier for them.
Alongside offering affordable rates, they have longer repayments period to lessen the burden for owners. However, these loans need a reputable credit history and score. The better the credit score, the quicker you get a loan approved. Most governments are coming up with small business funding solutions to encourage business activity in the economy.
3. Line of Credit Loans
Some businesses struggle with their credit score, making it difficult to acquire a loan. Business credit lines can open doors for a loan even with low credit ratings. Surprisingly, it doesn’t work as a traditional loan. You can open a line of credit by setting a limit on withdrawal amount with mutual agreement with a bank or credit union. It would allow you to withdraw money and complete the financing needs of the business.
Do you know what the best part is? You would only have to pay interest on the amount of money you have borrowed. At the same time, you also have an option to borrow again after making repayments if the credit line is open. Thus, it is giving you access to unlimited funds if you can make repayments timely. It is an amazing option with low-interest rates with quick access to funds.
4. Commercial Loans
When talking about loans, this is the first option that rolls in your mind. Most businesses opt for business loans from commercial banks. After all, they are offering low-interest rates with standard procedures. Some banks hand down loans considering your credit score, while others do ask for collaterals. Unlike asset financing, where you have to use the money to purchase machinery only, you can use a business loan any way you like.
There are no restrictions by the banks since they are only interested in getting their money back. Besides, if you are established in the market already with a good name, you can bag lower rates of interest with some further negotiations on the repayment periods. Similarly, you can borrow high amounts of loans too.
5. Asset Financing
Every loan can be used to purchase equipment, but asset financing is specifically for this purpose. It is not only offering low-interest rates but also eliminates the need for putting collateral. The equipment you purchase would act as collateral for your loan. So, even if you are struggling with your credit score, it doesn’t stop you from getting finances for asset purchases.
If you have a proper plan with adequate projections of financial statements, you can even get financing within 24 hours. On the same hand, you don’t have to wait for the transfer of ownership of the equipment to use it; you can benefit from it while making repayments. Sounds great, no? It is preferable that you pay at least 10% to 20% of the cost of equipment as the down payment to lessen repayments.
Is your business having liquidity problems? Usually, even with increasing sales and profits, businesses don’t have cash available. Perhaps, due to a lot of cash tied up in inventory or debtors taking forever to pay back. Invoice financing can come to your rescue. It gives you an option to sell your receivable invoices to a factoring company for instant cash.
These companies charge a standard fee or pay you 80% of the amount from invoices. Sometimes, rather than paying your entire amount from invoices, they pay 60% before and rest after collecting it from the client. Thus, your credit score has nothing to do with it, nor you have to put collateral.
7. Real Estate Loans
Are you looking for more office space? Well, you might consider renting as an ideal option, but it is always better to have your own space. Besides, rather than paying rent you can pay interest and repayments to become the owner of the property. Yes, this becomes possible with the option of real estate loans. All the financial institutions are offering loans specifically for buying offices, warehouses, retail stores, etc.
These work like balloon loans where you make payments for longer periods with low-interest rates. You have to make a down payment that is 20% of the total financing you need. It works as a security for banks since they have some contribution from your side. You can use the property or office space while making payments. At the end of the contract, the institution would transfer the rights and ownership to your business.
With the availability of so many loans, it makes it difficult to choose one. Therefore, dig into your requirements, how much money you need, and how you want to spend it? It would help you determine the type of loan which your business requires.