Business loans are designed to suit the needs of a individual business, Whether it is small or big enterprise. If your business needs money to help with cash-flow or to help to growth, a business loan could help.
Business loans are a way to borrow a set amount of money, which you pay later to the lender with interest.
Running a small business can be expensive, and seasonal increases, unforeseen emergencies, unpaid invoices, or the need for expansion can all lead a business owner to pursue financing options.
Purpose of Business Loans
There could be many reasons to get a business loan, but some of the popular reasons are listed below:
- To expand the business
- To purchase or upgrade the equipment for business
- To start a whole new business
- To increase your inventory
- To recruit and hire new talented employees
- To improve your business’s cash flow
- To build credit for future requirements
- To overcome unpaid invoices
Types of Business Loans
There are various types of business loans available in the market today. You just need to choose the best one that serves your purpose.
Let us talk about the common business loans before you initiate the process of searching for the best business loan.
Business line of credit
A small business line of credit is pretty similar to a personal line of credit (like your credit card). A line of credit is a predetermined amount of funds that a business can get when it needs and pay back later.
Equipment Loans
Companies that want to purchase new equipment or want to upgrade the existing one equipment with low monthly payments.
Working Capital Loan
A working capital loan is a business loan which is used to fund everyday expenses and operations, such as utility bills and rent. It is not used to buy long-term assets or long-term investments, rather they are used to cover a business’ short-term operational expenses.
Invoice Financing
Invoice financing is a general term used whenever a third party agrees to buy your unpaid invoices for a fee. With this financing option you could get an advance up to 95% of the invoice value upfront, usually within 24 hours.
There are two main forms of Invoice finance and they are:
- Invoice Factoring
- Invoice Discounting
With invoice discounting, you could still unlock up to 95% of the cash tied up in unpaid invoices, but you will be responsible for chasing the repayments. It is therefore completely confidential; as you manage your credit control, customers will not know that you are using this facility.
With invoice factoring, you can access up to 95% of the cash tied up in outstanding invoices. You effectively sell invoices to a factoring company for an agreed amount.
Unlike invoice discounting, your finance provider will take ownership of your credit control and ensure outstanding invoices are repaid on time. Having a factoring company to act as your credit controller removes the time-consuming task of chasing payments and allows you to focus on your business.
Read here: Choose Invoice Financing Over Loans- Why??
Personal Loans For Business
A personal loan for business is an option for businesses that do not have the credit score or business documentation required to qualify for a business loan. With a personal loan, the small business owner uses his or her own credit score and income documentation to qualify. The business owner will be held personally liable for the debt.
Short-Term Loans
A short-term loan must be repaid over a short period of time, usually within one year.
Crowdfunding
Crowdfunding is a way of raising finance by asking a large number of people each for a small amount of money. With crowdfunding, a small business or startup uses this options to raise money from a group of investors. The small business pitches its idea to investors, and investors donate money if the idea appeals to them.
Before applying for a business loan, you first need to decide what type of business loan works for you. A smart business owner will take the time to weigh out the pros and cons before signing the paperwork to ensure that the loan will help the business prosper.
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