When it comes to business loans, you should know that there are probably as many types as there are lenders. It’s your job as the business owner to fully assess your needs to determine which loan product is best for you. And it’s your job too to find out which lender offers the best interest rates.
Here in this article, we will be talking about the most common business loans and what they are for.
SBA Loans – The SBA in SBA loans stand for Small Business Administration. These loans are long-term loans guaranteed by the government, allowing businessmen that have been turned down by banks to get low-interest loans that they can use for different business purposes.
Just like a bank loan, with an SBA loan, you are given a set amount in bulk, which you need to pay back over a period of time. You also need to pay fees along with the principal amount and interest.
Equipment Financing – This type of loan is something you need to get from financial institutions that specialize in this type of loan. The lender will give you cash to buy the equipment you need. You then pay it back plus fees. Equipment Loans Online is the leading example of this type of loan.
Line of Credit – A line of credit lets you withdraw a maximum capital amount any given time. It works just like a credit card where you only pay the principal plus the interest rate.
Invoice Financing – With this type of lending product, you sell your business invoices to a lender, which then gives you a huge percentage of the total invoice amount minus fees, while withholding a certain percentage, typically 20%. With invoice financing, the lender will get the payments as they arrive.
Short-term business loan – With this type of loan, you are given a set amount, which you have to pay within a short time period, like one month or three months, along with fees.
Merchant Cash Advance – This loan product is unique in that repay the loan amount with a set percentage of your daily credit card sales.
Startup Loans – As the name implies, startup loans are for people who want to start a business. This is typically a multi-purpose loan where you are given a set amount so that you have the money to get your business started and keep it running.
As we said before, there are many financial institutions that offer these loan products, with some specializing only in one product. The thing with loans is that you often have to contend with high interest rates. However, it is possible to get a lower interest rate by improving your credit scores.
That said, before shopping for a loan product, take a look at your credit score and check how you can improve it. Lenders typically give preference to borrowers with strong credit scores, believing that they will be up to date on their payments and not default. If you have a bad credit score, get some help.