Setting up a business can be costly, and so can expanding one. It doesn’t matter what stage you are – a business loan can help you kick off or address certain needs. When reviewing financing options, it’s vital to understand the several types of loans for small businesses so you can determine the best solution for your needs.
Term loans are recommended for business owners who have excellent credit and are seeking large 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 main advantage of these loans is that you often don’t need stellar credit. They also require less documentation and are processed quickly, so you can realistically expect the cash upon need.
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. All small business loans are basically secured by specific assets, like inventory, purchase orders, and so on. But for some small businesses, a loan secured against personal property is the sole method of getting financing.
A good option for start-up and established businesses alike may be equipment loans, which can be used for nearly all kinds of business equipment, including cars. With these loans already secured by the equipment, lenders have no issues lending to new businesses. Loan rates are typically reasonable and vary based on the borrower’s credit rating and overall financial health.
A short term loan that uses invoices as collateral is known as invoice Financing. It’s usually meant to resolve cash flow issues related to unpaid invoices. This type of loan is strictly available to companies that depend on invoicing for payments and is thus used largely by B2B businesses. If your clients pay at different times, you can use this loan for stabilizing your cash flow.
Purchase Order Financing
Purchase order financing can present a great lending opportunity for start-up companies that get lots of orders without the cash required to fulfill them. The purchase order is securing the loan in that case, just like in invoice financing. With your purchase order, the lender will pay your supplier directly to produce and deliver the item to the customer. Upon accepting delivery, the lender gets paid by the customer.