One of the most crucial aspects of a business is funding. You may have a fantastic idea, but with money, your business may succeed before it starts.

Startup costs can be difficult to fund on your own. That’s why finding the right business loan is essential. With a business loan, you can begin your business dreams and have the funds to start it.

But there are different types of business loans available. Here’s a guide explaining what they are and which business loan you should apply for.

Keep reading to learn more!

Term Loans

Term Loans are one of the most common types of business loans available. A wide variety of businesses use them. These loans have a fixed principal amount borrowed, which you must repay over a designated time with periodic payments.

Interest rates on term loans can vary depending on the lender, the amount of the loan, the term length, and the borrower’s creditworthiness. Generally, the longer the loan term, the higher the interest rate.

Businesses might opt for a term loan if they need specific money and want to establish a payment plan that works for them. Term loans are also helpful for businesses that need a large sum of money, need a quick loan, and may not qualify for other types of business funding.

Small Business Administration Loans

The government backs up some Small Business Administration (SBA) loans, which makes it easier for small businesses to get loans even though they need good credit or security. These loans usually have better terms, lower interest rates, and more extended periods for paying them back than other business loans.

Depending on the loan program, a business may be able to get up to 90% of the loan amount, and it may have up to 25 years to pay it back. The SBA also has many loan programs, such as the standard 7(a) loans, the Small Entity Microloan programs, and the 504 loans.

Most of the time, businesses use SBA loans to buy real estate, grow their business, or spend capital. All SBA loan programs have specific requirements that the applicant must meet. For example, the applicant must have a good business plan, a good credit score, and a steady sales and cash flow history.

Business Lines of Credit

A business line of credit is a loan characterized by flexibility and the ability to use it in many contexts. It provides businesses with a predetermined credit limit. You can use it for business expenses, such as buying inventory or expanding operations.

While the interest rate is higher than other business loans, like personal installment loans, the borrower only pays interest on the amount used. Because of this, it’s ideal for businesses that don’t need a large lump sum of purchasing power but expect to need more funds. It’s also more accessible, as the business won’t have to re-application for the loan every time.

Equipment Financing

Equipment financing allows businesses to buy expensive equipment. Companies can purchase equipment without accumulating debt by financing up to 100% of the cost.

Equipment finance has a three-month to ten-year repayment period, depending on the loan amount and term. Equipment finance rates of 4-9%, lower than other business loans.

Businesses buying automobiles, trucks, machinery, or specialized equipment should use these business financing options. Companies will be assured of repayment by operating the equipment as collateral.

Insurance Business Loans

Most of the time, the interest rates on these loans are lower than those on standard unsecured loans. This is because the lender has security through the company’s insurance policies. Insurance business loans can be approved quickly, which makes them a good choice for businesses that need cash fast.

But it’s important to know how to pay back insurance business loans because they can have high fees and fixed interest rates, and the time frame for paying them back is often short. Before getting a loan, consider the pros and cons to see if it’s the best choice for your business.

Merchant Cash Advances

These business loans don’t need collateral; you can take them out without them. Small businesses can get quick funding through merchant cash loans, which you can use to start a business.

With a merchant cash advance, they base the repayment on the part of your weekly or monthly credit card sales. This makes repayment flexible and easier to handle.

The other good thing about these business loans is that there is no minimum or maximum loan amount. This means that company owners can borrow as much or as little as they need.

Startup Loans

They design these loans to help the business get off the ground and generate cash flow so the company can grow. They usually offer funds for startup expenses such as purchasing supplies, equipment, inventory, and marketing.

It can also help you finance expansions and acquisitions. Startup loans can come from various sources, such as banks, credit unions, online lenders, and crowdfunding platforms.

They often have shorter repayment schedules, lower interest rates, and flexible funding options. It needs to research before applying for a loan, as terms and rates vary depending on the lender.

Startup loans can be a great way to get your business up and running, so take advantage of the many options available.

Franchise Loans

They made these loans to help entrepreneurs buy a franchise, which let them start their businesses while taking advantage of a franchise’s existing brand recognition and infrastructure. You can get a loan for a franchise from a traditional bank or a non-profit group. The terms and requirements vary from lender to lender.

They often have more flexible repayment terms than standard small business loans and help with marketing and training for the franchise business. This kind of loan is an excellent choice for people wanting to enter the franchise business. It can put down a good amount of money.

Types of Business Loans Guide

Business loans are a great way to help your business grow and succeed. With the variety of loans available, it’s essential to take the time to research the different types of business loans that work best for you. Speak to professional advisors to get the most out of your business loan options and start building your business today!

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