There are a lot of different types of business loans on the market. Each of them has its advantages and disadvantages, not to mention that they also have their individual requirements to be met.
With varying interest rates, there are a lot of options for you to choose from if you are having a hard time financing your startup business with your personal savings. (which potentially is a wrong decision, by the way).
There are also a lot of lenders that are willing to help you in your business endeavors, such as banks, online lenders, etc. However, the real challenge is choosing the type of loan and how it will affect your business’s finances.
Here are some of them.
Arguably the most attractive investment in the market. Line-of-credit loans offer financial assistance to businesses that have encountered a halt in their cash flow or in need of money in a financial crisis. Typically, this type of loan is intended to pay the operating cost and purchases of inventory.
What this type of loan does is to extend the cash available in your business’s checking account. Fundamentally, the bank will advance a certain amount in a business’s checking account to cover any checks. From the time of developing cash, the business will pay it monthly until it is paid back entirely.
The best thing that line-of-credit loans offer is that they have the lowest interest compared to all other types of loans. Banks see these loans as a low-risk maneuver, and some of them even have clauses in their contracts stating that a business can cancel the loan if the business is in a dire financial situation.
Short term loans
A short term loan is typically intended for emergency situations. It usually has a short repayment period ranging from a few weeks to a few months, with a maximum of a year. Take note, however, that repayment terms vary from lender to lender, so be careful.
Not only is it useful in times of emergencies, but it is also a loan that is intended for businesses with a bad credit score. Companies with low performance or with a low credit score tend to be disqualified for loans with better repayment terms and little interest. However, short term loans are an excellent way for businesses to get additional funding, all the while building up their credit score.
However, short term loans can be costly and should only be an option when your business is in a financial crisis. Also, short term loans can be found in online lenders. Online lenders have a quick approval response time and a short time to get the money.
These loans typically have a limit of no more substantial than $50,000. If your business needs only a little bit of additional funding to reach the next goal, or if you want to have working capital, or even if you’re going to start your very own business, then microloans are there for you. Not to mention that the requirements for these loans are not that strict.
Most lenders that offer microloans offer capital to businesses that are in its early stages as they are made explicitly for entrepreneurs that don’t have enough financial backing.
Also, there is an SBA microloan program for businesses looking to take out a loan that is more than $50,000. The SBA partners with community-based nonprofit lenders to give small-time entrepreneurs a chance to build a small business of their own.
These microloans tend to have a repayment period of 6 years at the most. Even then, these loans have interest that is a little bit higher but is still relatively low when compared with other types of loans.
These types of loans typically come from conventional lenders. They are paid monthly, and the monthly payments cover both the principal amount and the interest.
Upon signing of the contract, you will receive the full amount as well as the amount of interest you will pay that ranges from the start of the loan to its last day. Also, if you paid the loan before the final day, there will be no penalties, and your interest rate will be adjusted accordingly.
For interim loans, lenders are concerned as to who will be paying the loan. Interim loans are used to pay the contractors that are building the new facility for the business. The mortgage that is meant for the building will be paid to the interim loan. As such, this loan is best used if you want to make a facility for your business.
These loans mentioned above are all good for a startup business if you are considering making one. Although keep in mind that these are not the only options you choose from in terms of funding options. You can research for additional loan options at https://commercialexperts.com.au/business-loans/, and not to mention that there are a lot of lenders willing to fund your next business endeavor.