To start or run a business typically requires outside funding to help. No matter if you are a new business or an established business, most businesses need to take out a loan at some point or another. There are many reasons why a business would need to take out a loan and there are many different types of loans to help with those specific needs. The amount borrowed, the term borrowed for, the purpose of the loan and rates all vary between business loans. You can research different loans either at a local, regional or national bank or even online. You may also be lucky enough to find a lending circle, private or personal lender. Researching online lenders make the loan process easy. However, nothing beats walking into a brick and mortar bank to speak to someone face to face to explain to you the options that are available. To get you started, below is an outline of loans that can be applied for and received by you or your small business.
Credit Builder Loan
A credit builder loan is designed to build your credit. The amount borrowed is actually held in a bank account. You make on-time, regular payments which in turn helps build your credit. Financial Institutions that are lending the money are not assuming any risk because the money being borrowed is sitting in an account. If the borrower does not make a payment, they can simply take it back. Because of this, this sort of loan does not typically require a good score to acquire. This can be a benefit to a business that has struggled and is in need of help building its credit. This type of loan is rather smaller in size and the term is shorter as well. They typically range from $300-$1,000 in size and are repaid over 6 to 24 months. This type of loan can be found at many credit unions and can be applied for online or at your neighborhood credit union.
Another type of loan is a term loan. This type of loan is when you get a lump sum of cash upfront and you repay with interest over a predetermined period of time. This type of loan is typically best for businesses looking to expand who need the cash to grow. They are also good for businesses that have good credit and a strong business model that will allow them to get the money fast and not have to wait long for funding. This is because you are getting the cash up front with larger borrowing amounts than other loan types. If you use an online lender you can typically get faster funding than a traditional bank. The downfalls of term loans are that they may require collateral and they may have higher costs.
Line Of Credit
Sometimes you may not require a large sum upfront. If this is the case, then a line of credit may be a good option. A business line of credit is similar to a credit card. You apply and are given a credit limit and you have access to and can borrow up to that amount. You are not given a large cash sum. You are only paying interest on the money that you have used and not the whole sum. This type of loan is best for short term loans or unexpected expenses and financing needs. You could even use it for travel (business or pleasure). They may also be well suited for seasonal businesses that have high and low points in the year and may need extra funds at times. Lines of credit are unsecured so they typically do not require collateral.
An invoice factoring loan is a loan that can be used to pay for unpaid invoices. This may be a good option if your business has a large list of unpaid customers and has a large sum of accounts receivable. With this resource, you sell the invoices to a factoring company who is then responsible for collecting the debt from the customers when the invoice is due. You get paid upfront and then relinquish the responsibility of waiting to collect the funds from your customer. The approval process is faster, because you have the invoices to back up the loan as collateral. However, they are often costly because they are doing the work of collecting the money for you and you actually lose control over the collection of your invoices.
These are a few examples of business loans that are available to you and your business. Do some research and shop around to find what would work best for the needs of your business.