Finding the fittest business loan for funding can be a tedious task. You have many business investment options to find the most suitable one, including loans, grants, investors, etc. The application process and set of rules of each of them are different.
The business loan option is the fittest for small businesses, as it is easy to get. But borrowing money isn’t as simple as it seems. According to one of the research reports, getting relevant financing is difficult for 72% of small businesses. It is necessary to know investment options. It will help you select the correct type of loan that meets all your business funding needs. This way, you will learn how well you use funds.
The best type of business loan varies from business to another based on terms, qualifications, rates, and the nature of the loan. This article discusses six types of business loans from which you can select the one that suits your business the best.
Term Loans
The most common type of financing is that you get all the cash up front and then make payments according to the schedule and terms decided. The benefits of this business loan are that you get the money upfront and can invest accordingly. You have the power to borrow a considerable amount, too. However, its interest rates may be higher than the others, requiring a guarantee or collateral.
SBA Loan (Small Business Administration Loan)
SBA loans are different from term loans because SBA guarantees the loans the lenders provide. The repayment method and period vary and depend on the nature of your spending. If you borrow the loan for working capital, the repayment period is seven years; if you need to buy equipment, the period is ten years, and 15 years if you want to purchase real estate. The benefits are:
- The low interest rate.
- The power to borrow a considerable amount.
- Long periods to repay the amount.
However, qualification for this loan is complex, and the process for the loan application is lengthy. This loan is perfect for your needs if you want to expand your business or refinance your debts.
Business Lines of Credit
The business line of credit allows the borrower to withdraw cash up to the credit limit authorized to the borrower. The interest rate is charged only on the amount which has been removed. This type of borrowing doesn’t usually require collateral and is flexible. If you are conducting a seasonal business or want to meet unexpected expenses, this is the best type of loan for you.
Equipment Loans
As the name says, equipment loans help a business owner buy equipment. The loan term is usually equivalent to the machine’s useful life, and the equipment’s cost plays the role of the amount of loan borrowed. The equipment itself is generally taken as collateral. The benefit of this loan is that the equipment will be in your use even when put as a guarantee. However, equipment usually depreciates faster than the loan term.
Personal Loans
If your business is new with no operating history, you might find it challenging to get a business loan. In such a case, you can get a personal loan. However, you will need a good credit score to qualify for the right personal loan amount. However, you can only get a small amount to own a business loan. Moreover, failure to repay it will end up hurting your credit score. If you have a good credit score and are a startup, this is the best type of loan you can go for.
Business Credit Cards
These cards are becoming popular day by day. Just like personal credit cards, you can make business purchases through them. Whenever needed, take out the map and make the payment. It is like a portable line of credit that you can carry around. Remember to make the minimum monthly payment and don’t make massive purchases on it. You might get rewards for shopping, and no collateral is required. However, there are several fees attached to it.
It is the best form of business financing if you want to pay for ongoing business expenses instead of going for something big.
Conclusion
All the loans listed above are well-suited to all forms of business. Pick up the type of loan that suits your needs and your business and apply for it!
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