If you’re new to running a business, there is a likely chance that you are strapped for cash. Even if you’ve been in the game for a while, every business owner crosses that road from time to time when finances are tight. In these times, it’s important to understand the different business loan types available to you.
Whether you’re currently in a position where you require additional funds to keep your business operations running smoothly or you’re just preparing for that day, you’re in the right place. In this article, we’re discussing the different types of business loans that you can choose from. Keep reading to learn more.
Business Loan Types Explained
The various types of business loans available will depend on the type of business you have. For example, if your primary objective is to sell merchandise, a merchant loan may be your best option. However, most businesses will benefit from the following types of business loans.
1. Business Line of Credit
A business line of credit is best reserved for times when you actually don’t need the money. This option is great for businesses that want to have a cash cushion for those uncertain times that could arise unexpectedly.
2. Working Capital Loan
Working capital loans are difficult to obtain without excellent credit but you can usually secure great rates, typically between 3% and 7%. These loans are best used to finance the everyday operations of your business on a short-term basis.
3. Term Loan
If you have an ongoing need for working capital, a term loan is also a great option. With this type of loan, you will borrow the funds in advance of your need for the funds, and then make monthly payments. Long-term options are available for borrowers with great credit, and you can likely obtain a short-term loan even if your credit is less than stellar.
4. SBA Loan
You may have heard of an SBA disaster loan in your quest to find loan options. But the fact is you don’t have to wait for a disaster to strike to become eligible for an SBA loan. These types of loans are excellent for borrowers with low credit in need of quick capital.
One of the most common types of business loans revolves around your need for equipment such as vehicles, machinery, or other business equipment. Depending on your business finances, age, and credit, you can typically secure an equipment loan with rates anywhere from 7% to 30%.
6. Personal Loan for Business Use
If you’re just getting started with your new business, your business probably doesn’t have any credit and may not have many assets to use for collateral. In this case, your best option is likely a personal loan. Of course, if you qualify for a business loan, you should avoid taking out a personal loan to finance your business as it can become difficult to balance the books, especially during tax season.
What Are the Best Types of Business Loans?
Choosing among the different business loan types depends on the type of business you maintain. Typically, a term loan is all-encompassing for a variety of different types of ventures, however, something like an equipment loan may be better served for a building contractor.
Now that you’ve done some research, talk to your banker to find the right fit for your needs.
If you found this post helpful, we invite you to check out the rest of our site for more tips on running a successful business.