Are you planning to apply for a business loan for your small business? But do not have any idea what to choose from?
As a requirement to have your business loan approved, first you need to identify which type of business loan you need to apply. To help you out, here are some types of business loans and what they are used for:
- Term Loans
One of the basic business loans is the term loans; if an individual gets an approval, they are able to get an upfront lump sum of cash that has to be repaid at an agreed period of time. How much do they offer? In some cases, online lenders are able to offer a loan term with up to $1 million in cash than the banks. This type of loan is best for businesses that are looking for business expansion and those business owners who can’t wait for other forms of funding; in fact, even successful business owners take advantage of term loans.
However, since lending offices or banks are capable of lending a significant amount to the borrowers in full amount and upfront, most of the lenders may require you to provide leverage collateral or personal guarantee. Also, to get an approval, the business owner must have great credit; this is one of the reasons why 75 percent of bank business loan applications are turned down.
- SBA Loan (Small Business Administration)
SBA is not the ones who offer the loan but assists the borrowers by guaranteeing the loans that lending companies and banks offer to small businesses. Usually, they will eliminate some hurdles and risks by encouraging the banks or lending companies to approve the loan to a small business owner.
The terms of repayment usually depend on how you plan to use the money; according to experts, for working capital, the SBA terms approve 7 years of repayment. If in case you plan to use the money to purchase new business equipment, it will cost you 10 years of repayment and 25 years if you plan to purchase real estate.
This type of loan is best for refinancing existing business debts and expansion.
- Business Line of Credit
One of the most known and flexible types of business loans is the business line of credit. Usually, banks or lending companies allows you to borrow a certain amount of money – however with limit – any time you need it, and pay the interest only; this is most likely how your credit card works.
A business line of credit is best for short-term financing necessities such as, paying for recurring expenses at the operations, unexpected business expenses and supporting cash flow.
- Business start-up loans
Personal loans are one of the common types of business start-up loans, where the rate of your business loan approval is solely dependent on your personal credit score and sometimes requires the borrowers to have leverage collateral.
Start-up business loans usually approve $50,000, depending on your credit scores and bank history.
There are easiest and fastest ways to make a loan; however, you need to know which type of loan do you need to avoid late payments or hurting your credit scores.