Tapping into some business opportunities may require additional finances that your organic growth in sales may not be able to support. For instance, the need to boost inventory for a huge order, purchase new machinery, or upgrade commercial real estate may necessitate that you take a loan.
Your business can explore those opportunities and realize tremendous growth by getting a business loan.
This article will show you the main types of business loans and why your business should consider getting business loans to grow.
Types of business loans you should know
There’s variety when you step into the business loans market as a business owner. Lenders package business loans variously to target a variety of business needs. Whether you want to purchase a commercial property, boost your inventory, or acquire machinery, there’s a relevant business loan.
1. Personal loans for business use
If you’re a newbie in business with a good credit history, this can prove an excellent financing source. The main limitation of personal loans is that it offers a low loan amount. You may, therefore, need to supplement the loan amount with other funding sources to meet your business start-up costs. You can access personal loans from traditional banks and fintech lenders. If you’re an established business, you’re better off going for a standard business loan.
2. SBA loans
SBA loans are suitable for small businesses with a good credit standing and strong financials. SBA loans have longer repayment periods. SBA loans may not be a feasible option if your credit ratings are low and you need quick money for the business. Although banks and other lenders offer SBA loans, they’re partly guaranteed by the U.S Small Business Administration (SBA). This gives comfort to lenders to fund small businesses.
SBA loans are affordable and one of the best sources of credit for small businesses. Businesses can access different SBA loan programs depending on their business requirements. For instance, there are SBA loan programs for working capital financing, real estate renovation, equipment purchase, and business acquisition.
3. Term loans
Term loans are suitable for businesses with long-term working capital needs. The business borrows a fixed amount from a traditional bank or fintech lender. The company then repays the loan amount over a predetermined period.
Term loans aren’t for fixing financial emergencies. They’re for long-term needs like buying other businesses, expanding business premises, or acquiring business property. Term loans are affordable, but you need solid financials and a good credit standing to qualify.
4. Equipment financing
Equipment financing is ideal for a business that wants to lease or purchase machinery, vehicles, and equipment. This loan type helps you acquire new or used equipment upfront as you repay the lender in installments. Since the equipment secures the loan, a small business with a comparatively low credit score can qualify for this business loan.
5. Business lines of credit
Business lines of credit operate like a buffer for businesses whenever they face cash-flow dips or during emergencies. They’re not meant to finance long-term business goals. With lines of credit, a lender allows the borrower to access up to a specific amount of funding to meet their business needs. Businesses use the line of credit to pay for operational expenses or to plug in a seasonal cash-flow gap. Banks and fintech lenders offer business lines of credit on varying terms.
6. Other types of business loans
- Invoice financing
- Commercial real estate loans
- Microloans
- Merchant cash advances
Ways a loan will help your small business
- To support business expansion; diversify into a new product line or launch a new branch.
- To acquire another business
- Purchasing new equipment for the business
- Adding inventory
- Supporting marketing campaigns
Other reasons why you need to consider a business loan
- Hiring more staff
- Meeting huge orders
- Covering seasonal cash flow droughts
Conclusion
Some business owners are extremely cautious about taking business loans that they fail to achieve their business growth goals. Caution is necessary, but understanding how to apply for business loans to support the growth of a business is vital for every small business. Reach out to an affordable lender for an appropriate business loan that suits your business growth goals.
