Whether you are running a small business or a large corporation, there comes a stage when your business needs funding. This funding requirement may have different purposes like your business is facing a cash flow crisis, you may need to complete a big assignment or deliver a big consignment, or you are planning to acquire property for your business. The business owner needs to answer several pivotal questions before finally opting to start a loan application. There are different types of loans out there that all differ and vary from one another. It is essential that before you consider applying for one, you must steer clear of a few things like the loan’s allocation and purpose. You should also inquire yourself the questions whether you are capable of paying back the loan or not, would you be able to bear high-interest rates, do you have a good credit score, and do you have something to present as collateral to the lender?
All such questions must answer, so you don’t end up in a financial constrain that you never anticipated getting into in the first place. You must be aware of what loan type would be suitable as per your business situation. There are many options to select from before you finally present your loan application to a lender. You can either go to banks or lending institutions with your loan application or approach some private investors, but you have to bear in mind the cost of getting each loan. As you will be applying for a commercial loan, it is always better to hire the services of professionals who can guide you about the pros and cons of different business loans. In this scenario, you can hire an experienced commercial loan broker who is a third party and act as a bridge between the lenders and the borrowers. The following are some of the business loan options for your business to stay any financial crunch afloat.
With this type of loan, the borrower receives the required loan amount and pays back the lender with interest in installments over the agreed repayment schedule. If you compare bank term loans with private lenders’ term loans, the bank term loans are more affordable and reliable. The term loans offered by the bank are generally low in interest rates and provide longer repayment schedules. The term loans are always more productive if you are planning to make an investment in business like acquiring companies, purchasing assets for a business like property or equipment, or need working capital.
BUSINESS LINES OF CREDIT
Business lines of credit are the best-suited options for those businesses that are facing cash flow problems or need to pay some emergency expenditures. However, the companies must not choose lines of credit if they need funds for long terms business goals like expansion or purchase of an asset like building, office space, or equipment. In the business line of credit, the lender will lend you a specific amount, which you can draw any time as required. The business line of credit can be both like fixed or revolving. The prime example of a line of credit is the credit card. You can get a business line of credit from both banks as well as private lenders, but banks will give you a better deal with competitive interest rates and attractive incentives for renewal.
It is another loan option for those businesses that need long term loans. In the US, the Small Business Administration (SBA) doesn’t give business loans but co-guarantee a business loan to banks or other lenders who intend to provide business loans. SBA loans are considered the most valuable product and one of the most affordable sources of getting capital for your business. SBA loans can be used either for working capital by the businesses or purchasing equipment, acquiring a business/company, or carrying out a significant renovation of the existing property.
COMMERCIAL LOANS FOR REAL ESTATE
Some businesses also use commercial loans for the purchase of commercial properties like shops, offices, buildings, or malls. It all depends on the nature of business and purpose for the utilization of commercial loans. In this type of loan, the lender can be a bank or a lending institution that pledges your property as collateral and issues you loan against that asset. The commercial real estate loans obtained from banks are more affordable as they offer longer repayment tenures with lower interest rates. At the same time, private lenders may demand some strict timelines and higher interest rates. Commercial real estate loans are commonly known as house financing or equipment financing etc.
The invoice financing option usually is available in B2B form of businesses where the purpose of this financing is to handle cash flow problems. In this form of funding, the borrower uses its outstanding or receivable invoices to get a loan from the lenders, which means that unpaid invoices act as collateral in this deal. It is essential to mention that the lender will never give you a 100% loan against your total outstanding invoices amount but will only give you a credit of around 85-90% depending on how well you negotiate. Unless your customers pay the invoice, both borrower and lender wait while the lender charges a weekly fee to the borrower. Once the customers spend the invoices, the lenders pay back the remaining 10-15% amount to the borrower after deducting its services fee. Invoice financing is one of the popular forms of loans, especially in small and medium enterprises.
We have discussed some accessible and affordable types of loans that businesses can utilize as per their requirements. It is the duty of the persons running the show in business to decide which kind of business loan will most serve their purpose and will be more affordable at the same time. However, it is vital for companies that they must not become a victim of the debt trap and always do their math and take into account its pros and cons before applying for the loan. The businesses have to repay the amount and interest to the lenders.