Are you preparing to apply for a business loan?
Good move.
A loan can be an ideal source of funds for starting a new business or expanding an existing one. You can also use the money to purchase inventory, pay your staff, increase working capital, or solve a financial emergency.
Before you submit your application, did you know there are different types of business loans? Going in for the right type of loan not only enhances your chances of getting approved but also helps ensure you put the funds to appropriate use.
Continue reading to learn more about the various loan options for businesses.
Term Loan
Term loans are the most common types of business loans. Lenders don’t typically require you to state the reason for applying for the loan, and even if they do, they don’t pay much attention to how you use the funds. As long as you’re able to repay the loan on time, you’ll be good to go.
When you take out a term loan, a lender gives you a certain amount of money in a lump sum, repayable within a specified period of time. You’ll then repay the money in equal monthly installments, plus the interest.
Term loans can be secured or unsecured.
A secured loan doesn’t require any collateral and often charges higher interest rates. On the other hand, a secured loan requires collateral. This can be a valuable asset your business owns, such as a car or real property.
Here are your lending options if you’re interested in asset-based lending.
Equipment Loan
Are you looking to purchase some equipment for your small business? Perhaps you own a manufacturing company and you need to set up a new plant.
Instead of taking out a term loan and using the money to purchase the equipment, you should apply for an equipment loan. If approved, the lender will make the full payment to the equipment seller, but the same equipment will be used as collateral. This means the lender can repossess and sell the equipment if you default on the loan.
After paying off the loan, you’ll be the sole owner of the equipment. If necessary, you can then use the same equipment to get a secured loan in the future.
Business Line of Credit
If you’re anything like most people, you have a credit card.
A business line of credit works just like a personal credit card. If your business has a good credit record, you could qualify for your bank’s line of credit facilities.
When approved, you’ll have access to a certain amount of money, say $20,000. You’ll use these funds as you wish (mostly to make payments via the card), but you’ll have to pay back what you’ve spent in a month, along with interest or service fees. After payment, your limit resets to $20K.
Make Use of the Different Types of Business Loans
In terms of financial uncertainty, a business loan can help you steady the ship. Having read this article, you now know the various types of business loans you can apply for. Be sure to evaluate your needs and find the most suitable option.
Keep reading our blog for more small business tips and types of business loans to try out. Visit the Finance section of our site right now!
