Business Loan 101: Understanding Your Options
Updated: Apr 10
When it comes to financing your business, there are many options available. Each type of loan has its own unique set of benefits and qualifications, and it can be difficult to know which one is best for your business.
To help you make an informed decision, listed below are some of the most common types of business loans available.
Traditional Term Loans: These are the most common type of business loan, where a lender provides a lump sum of cash that is repaid over a set period of time (up to 2 years) with interest. Cost and interest are lower if it's a secured term loan (collateral) than an unsecured term loan. They are typically used for expansion, equipment purchases, or other long-term investments.
SBA Loans: The Small Business Administration (SBA) guarantees a portion of these loans, making them less risky for lenders and more accessible for small businesses. Depending on the SBA loan program terms can range from ten to twenty-five years, and interest is lower than traditional term loans. They can be used for a variety of purposes, including expansion, acquisitions, equipment purchases, or real estate purchases.
Equipment Financing: As the name suggests, these loans are specifically for the purchase of equipment. The equipment itself is often used as collateral for the loan which in turn allows the loan to have lower interest and cost than other unsecured loans. The term of equipment financing can go up to 5 years.
Lines of Credit: These loans provide businesses with a revolving line of credit that can be used as needed. They are similar to credit cards and can be used for short-term funding needs, such as inventory purchases or unexpected expenses. Lines of credit can be secured by collateral which will have better rates, cost, and draw terms than an unsecured line of credit.
Merchant Cash Advances: These are not technically loans, but rather a way for businesses to receive a lump sum of cash in exchange for a percentage of future credit card sales. They are often used for short-term funding needs and are best suited for businesses with a high volume of credit card sales.
Each type of loan has its own qualifications, documentation required, and application process. It's important to consider the terms and conditions of each type of loan and compare them to find the best fit for your business needs and financial situation.
Find out your loan options and make an informed decision. Applying to get a quote does not affect your credit.
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