What Loans Are Available For Business?

Small businesses will likely need extra capital to expand, boost existing cash flow, or bring in new employees. If you are searching for loans for business, you will be pleased to learn that there are multiple options for you to choose from. This article will detail the different types of business loans and how they vary.

Linked Finance

Linked Finance is a peer-to-peer lending for businesses. Online platforms match investors with businesses seeking loans. The average loan amount is $50,000, and the terms are flexible. One of the advantages of linked finance is that it allows businesses to borrow money without collateral. 

 Term Loans

Term loans are the most commonly used type of small business loan. Business owners are loaned a lump sum of money they must repay over a fixed duration. Your monthly payments will likely be fixed and include an annual or monthly interest rate on the principal balance. Businesses can use term loans to meet various needs, including equipment, hiring, and marketing costs. 

SBA Loans

Small Business Administration loans are highly sought after because they are government-backed and, therefore, meager in cost. Unfortunately, the SBA loan application process is notoriously long and complex. If your business urgently needs a cash injection, this may not be the best option for you. Business owners applying for SBA loans are advised to allow an application and processing at least three months before the money lands in their account. SBA loans are worth the wait because they offer business owners the most attractive fees and interest rates. 

Business Lines Of Credit

Business lines of credit operate on a similar principle as credit cards. Businesses are awarded a revolving credit limit that they access through their checking accounts. You will be allowed to spend until the maximum limit, at which point you will have to repay it before being allowed to withdraw more money. Business lines of credit are an excellent option for business owners who do not know the amount of money they need because it ensures you only pay interest on the amount you withdraw. Terms loans force business owners to pay interest on the amount lent even if they only used part of the money. Lines of credit also offer the advantage of not requiring any collateral. 

Equipment Loans

When your business needs to upgrade equipment, these loans come in handy. They are designed to help businesses cover the cost of expensive equipment, which will retain market value, e.g., furniture, computers, etc. Equipment loans are cheaper than other kinds because the equipment you purchase serves as collateral should your business be unable to repay the loan. The presence of collateral means that you are likely to secure better terms and interest rates than other financing options, e.g., terms loans and business lines of credit. 

Accounts Receivable Financing (Invoice Factoring And Financing)

Is your business struggling to receive payments on time? Invoice factoring and financing may be the best option for you. Accounts receivable financing will allow you to sell unpaid invoices for collateral to lenders to get an advance on a certain percentage of the amount of money you are owed. Invoice factoring will allow the lender buying the invoice to collect the payment owed from your clients. In contrast, invoice financing will oblige your business to obtain the payments to repay the amount you borrowed. 

Commercial Real Estate Loans

Commercial mortgages are appropriate for businesses looking to finance existing or new properties, e.g., warehouses, retail spaces, or offices. Commercial real estate loans operate like term loans, but the money loaned is dedicated to expanding your location, refinancing existing loans, or purchasing new commercial properties. 

Micro Loans

Micro Loans are typically offered by non-governmental organizations, nonprofits, or public institutions. They usually provide a maximum of $50,000 in funding for which the business has to put up some collateral, e.g., personal assets, real estate, or business equipment, to qualify for the loan. Microloans are a good choice for businesses that do not need much money to meet their needs. 

Merchant Cash Advances

Merchant cash advances allow businesses to borrow against their projected future sales. They are not very popular because they traditionally charge very high-interest rates. High-interest rates are dictated to the increased risk of lending against future sales rather than against unpaid invoices as in invoice factoring and financing. The most significant advantage of merchant cash advances is that they are easily accessible. Opting for a merchant cash advance is not advisable unless you are facing an emergency and have no other viable alternatives. Your business must send daily or weekly repayments until the advance is paid off.  Given the complexities and potential pitfalls associated with merchant cash advances, especially regarding the high interest rates and rigorous repayment schedules, seeking the advice of a skilled MCA attorney before entering into such agreements can prove to be a wise decision.

Franchise Loans

If your business is part of a larger franchise, you will likely have access to a line of credit offered by the franchisor to franchisees. Even though you have to put up your capital, the franchisor may be able to provide you with some money to pay the franchising fees or other operational expenses.