NAVIGATING BUSINESS LOANS AND FUNDING
By: Jason Allen
Tags: Business Funding, Business Financing, Business Strategy, Business, Business Loans

When it comes to financing your business, various types of business loans exist especially for small business owners who need financing. When working with a loan provider, make sure that your provider can explore all options available. The appropriate business loan product depends on several factors including your needs and the terms, rates, and qualifications put in place by the lender. Having some general idea about the different existing types of loans will help you understand what your lender is offering. Here is a breakdown of general loan structures that exist:

Small Business Administration (SBA) Loans

These are government-backed business loans where the SBA works with lenders like banks and nonprofits who provide loans to business owners. Usually, these loans are secured meaning you must pledge your company or personal assets as collateral. They are recommended for businesses aiming for an expansion or refinancing of existing debts, and strong-credit borrowers who can wait a long time for funding. The benefits of this financing option include long repayment terms, low rates, and high borrowing amounts of up to $5 million. However, the application process for this loan is long and rigorous and is usually hard to qualify.

Term Loans

Often called an installment loan, this is a common form of business financing where you get a specific amount from a bank that has a specified repayment schedule and either a fixed or floating interest rate. The payment schedule is variable and mostly dependent on the policies of the lender. Term loans are ideal for small businesses with sound financial statements. This financing option is popular for its flexibility and simple, streamlined application process, although it may sometimes require a person guarantee or collateral.

Equipment Loans

This type of business loan facilitates the purchase of equipment for your business. Usually, the loan term is matched up with the expected lifespan of the equipment. The equipment also serves as the collateral for the loan. The rates are dependent on the value of the equipment and the strength of your business.

Invoice Financing

A type of business loan used to solve cash flow problems caused by unpaid invoices. Here, borrowers can sell their unpaid invoices or use them as collateral in exchange for cash up-front. Invoice financing is a good option for startups and poor credit borrowers since it is reliant on your customers paying and not your business.

Business Lines of Credit

Business lines of credit provide access to funds up to your credit limit, thereafter, you pay interest on the money you’ve drawn. Compared to term loans, this type of loan offers more flexibility. Usually ideal for businesses with short-term financing needs, managing cash flow, or handling unexpected expenses and seasonal businesses. The benefits include flexibility and no requirement for collateral as it is usually unsecured. However, business lines of credit may carry additional costs including maintenance and draw fees. Besides, they require strong revenue and credit to qualify.

Microloan

Microloans are typically loans of less than $50,000 offered by nonprofit organizations and mission-based lenders. These loans are best for small business owners, businesses in disadvantaged communities, newer businesses, and businesses seeking only a small amount of financing or startups with a thin credit file who cannot secure funds through a traditional bank.

Business Credit Cards

These are revolving lines of credit. For these, you are allowed to draw from and repay the card as needed, provided you make minimum monthly payments and do not exceed the credit limit. One of the amazing things about this type business loans is that you can get 0% interest from 6 months to 18 months. Funding amounts between $50,000.00 and $250,000.00 are not uncommon. Typically, ideal for small businesses and financing ongoing expenses like travel, office supplies, and utilities. Additionally, you can cash out through third party providers and use the funds for whatever you want. This is truly a creative method of business financing.

Merchant Cash Advances

A form of financing that permits the selling of a company’s portion of its future sales in exchange for immediate payment. It is designed to provide your company with funds to grow and pay operational expenses. This form of financing is ideal for emergency financing needs, businesses with strong daily revenue and poor-credit borrowers. This type of business loans can be processed faster than many other options.

Personal Loans

Another form of financing where you borrow money for just about any purpose. This kind of loan is an option for startups since banks typically do not lend to businesses with no operating history. Mostly ideal for businesses and entrepreneurs that do not have the credit score or business documentation required to qualify for a business loan. It is best for business owners with strong personal credit.

Commercial Real Estate Loan

This is a long term real estate loan that can help you purchase or upgrade commercial real estate. It is paid off over a long time such as 20 or 30 years. Typically, a commercial real estate loan is a mortgage secured by a lien on commercial property as opposed to residential property. This kind of financing is beneficial for small businesses seeking to purchase, expand, or renovate their sites. The most common types of Commercial Real Estate Loans include permanent loans, SBA Loans, and Bridge Loans.

Short-term Business Loan

This is a type of loan obtained to support a temporary personal or business capital need. It constitutes a borrowed capital amount and interest that needs to be paid by a predetermined date. This is usually within a year from getting the loan. This option is valuable for business start-ups that are not yet eligible for a credit line from a bank. The loan amount ranges from $100 to $100,000.

Accounts Receivable

This is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Usually, Accounts receivables are listed on the balance sheet as a current asset. In a nutshell, Accounts receivable is any amount of money owed by customers for purchases made on credit.

Crowdfunding

A form of financing where a small business or start-up uses an online platform to raise money from a group of investors. A small business pitches its idea to potential investors and the investors donate money if the idea appeals to them. This kind of financing is beneficial for businesses with an appealing product and entrepreneurs with a strong marketable business plan. It is crucial for the business seeking financing to map out a strategy and promote their campaign to entice investors.