The best way to grow your business is to get the needed capital.
There are many ways to get this capital, and one of them is through loans. Loans can help you start a new business or grow your current one, and they come in various forms.
When it comes time to choose a loan, there are a few factors to consider.
Questions to Consider Before Choosing a Business Loan
– How much funds do you require?
Make a list of all the expenses associated with your new venture. Though requesting as much money as possible may be tempting, it’s better to know exactly what you require.
– What is the purpose of the funds?
Lenders will inquire as to how you plan to use the new funds. If your business plan is solid, you’ll be able to explain why it’s a good investment.
– How much time will it take you to repay the loan?
Lenders require prompt repayment of their funds, plus interest. Ensure you understand how long it will take to pay off the loan and discuss it with your lender.
– Are you looking for a short-term or long-term loan?
Short-term loans can get you money quickly, but you often have to pay them back quickly, and the interest rates can be high.
Long-term loans are typically repayable over several years. They typically have lower interest rates, but you will most likely pay that interest over a longer period.
Types of Business Loans
– Term loans
Term loans are traditional bank loans with a simple process: A set amount of money is borrowed and paid back with interest over a set period.
Term loans can be obtained from banks or online lending platforms. They are ideal for businesses that require ongoing capital, whether for improvements, expansion, or acquiring a new company.
– Business line of credit
A business line of credit gives your company access to funds that can be drawn on as needed. You can obtain a fixed or revolving line of credit.
The best use for business lines of credit is for short-term requirements and emergencies, such as a lack of revenue, the recovery from an accident, or another unforeseen circumstance.
– SBA loans
The Small Business Administration guarantees loans to help small businesses in the United States, encouraging banks to make favorable loans with longer terms. After traditional bank loans, these are usually the most affordable loans.
– Equipment financing
Buying new equipment can be costly. Many small business owners seek loans explicitly designed to assist them in purchasing new tools, machinery, vehicles, or other necessary equipment to help their company grow.
– Invoice financing
Invoice financing helps you bridge the cash flow gap by providing a loan for 80-90% of the invoice amount. Invoice financing is ideal for businesses experiencing temporary cash flow issues due to a large volume of unpaid invoices or an outstanding amount of accounts receivable.
– Commercial real estate loans
Loans for commercial real estate are used to purchase a commercial property for manufacturing or operations. Commercial real estate loans may be structured as “balloon loans,” with smaller monthly payments followed by a large lump sum or “balloon” payment at the end of the loan term.
– Microloans
Microloans are intended for small-dollar ventures or micro-businesses such as food trucks, freelancers, startups, and entrepreneurs starting new businesses.
– Merchant cash advance
A merchant cash advance is a very pricey loan option funded through a merchant account that takes a cut of your daily credit and debit sales after giving you a cash advance. When you need fast cash, merchant cash advances can be a good last resort, particularly if you have the cash flow to repay it.
– Personal loans for business use
Owners with excellent credit can obtain personal loans with favorable terms to fund a startup or to support their growth. Personal loans can also be combined with other types of loans to help you achieve a specific financial goal.
