Have you ever dreamed of starting your own business? Whether it’s a dream to sell homemade cookies or open a fast-food restaurant, getting the money you need is half the battle to make it happen. There are many types of business loans to help you reach your goals.
Not all business loans are created equal, though. Ensure you find the right one for your business and know common traps that can cause business loans to go wrong. Keep reading to learn more.
1. Traditional or Term Loans
Traditional or term loans are the most common business loan types. It is a loan that is repaid gradually over a specific period. These loans are generally secured by the borrower’s assets, such as inventory or cash, and are used to finance short-term business needs.
They may have a lower interest rate than short-term loans but can have larger monthly payments. They also need a lengthy approval process for the borrower to secure approval. Due to the length of repayment, they can be an excellent financing option for a business owner that needs long-term prospects to cover significant expenses or capital investments.
2. SBA Loans
Small Business Administration (SBA) loans are provided to small businesses to help them with various needs. It includes the purchase of inventory, furniture, equipment, etc. These funds typically come in a secured loan, meaning the business must use some collateral to receive the loan.
You may waive collateral requirements, but the interest rate and repayment period may be higher when these conditions are unmet. The repayment time frame for these loans is longer than that of other loan products, allowing businesses to spread out their loan costs over a more extended period.
They often have low-interest rates compared to other business loans, making them a desirable option for business owners. Check this site for a small business guide in SBA loans.
3. Merchant Cash Advances
This type of loan has become a very popular one due to the quick and easy access they provide to funds. They are loans paid back via a percentage of the borrower’s daily credit and debit card sales. This type of loan is often attractive to entrepreneurs looking to generate capital without the hassle of lengthy approval processes.
They come with high-interest rates and often must be paid back within 6 to 12 months. A significant benefit that MCAs offer is that they give businesses access to large sums of money without any collateral or credit score required. It is attractive to entrepreneurs who may not qualify for traditional business loans.
4. Specialty Loans
They are specifically designed for businesses whose borrowing needs are outside the scope of traditional loans. They need less paperwork and serve to finance higher-risk or less-established companies such as startups, biotech firms, and energy projects.
They often come with a higher cost than traditional loans. But they can be well worth it if they provide a solution to the unique funding needs of a business.
Consider the Types of Business Loans
Small business loans offer a wide range of options to meet the specific needs of businesses, depending on the loan purpose. If you’re considering a loan for your business, research the types of business loans available to determine the best fit for you.
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