Every business may need to access financing options at some point in its existence. Small businesses in particular are susceptible to financial volatility, so there are several types of loans designed for them. Here are some common types of small business loans.
Business Lines of Credit
Lines of credit relate to your business’s credit limit. If you use one, you can access funding up to but not exceeding your credit limit. They tend to be more flexible than traditional loans because they are unsecured and you only need to pay interest on money you’ve used. Lines of credit typically come with credit checks and additional fees. They’re most useful for short-term financing.
Lenders such as banks offer SBA loans, which the Small Business Administration (SBA) tailors and guarantees to small businesses. These loans are most effective for borrowers with strong credit who want to refinance their debts or expand their businesses. The application process is lengthy, which means you may need to wait for some time before funding becomes available, but rates are low, borrowing limits are high and repayment terms are flexible.
Equipment loans apply specifically to the equipment you need for your business. You can use them either for equipment that you own or want to purchase or for equipment leasing and rentals. Lenders structure loan terms based on the type of equipment and its projected lifespan. They base loan rates on your business’s credit history and the equipment’s value. Equipment loans are secured loans, with the equipment you’re financing as collateral.
Term loans provide businesses with lump sums upfront. The loans accrue interest over the course of the term and the borrower must repay the initial loan amount and the interest by the end of a given repayment period. You can apply for a term loan through a traditional or online lender. A term loan is one of the most popular types of loans for businesses of all sizes. Rates and fees may vary by lender and the creditworthiness of the borrower. Some term loans may require collateral. However, you can access funding quickly and borrow relatively high amounts.
If you need financial assistance for your small business, you can reach out to a traditional lender such as a bank or contact the SBA for information and resources on loans and financing that best fit your needs. Make sure you research your options carefully so you can make the best decision for your business.