3 Different Types of Business Loans Every Entrepreneur Needs to Know
Were you aware that there are several types of business loans?
A loan can be a powerful tool for any business that wants to get ahead. A loan is when you borrow something (money, in most cases) and return it over time. Many people take out loans daily, whether it’s for school or personal use, and businesses can also take out loans.
Understanding your business loan options will help you figure out which one to go for because each type of loan typically has a purpose. For example, student loans are designed for school. The same concept applies to certain business loans.
Read on to learn everything you need to know about business loans.
An SBA loan is a loan that comes from the Small Business Administration. SBA loans are great for both startup businesses and preexisting businesses looking to purchase major assets. There are several different SBA loan types, such as microloans, SBA 7(a) and CDC/504 loans.
What makes getting an SBA loan beneficial to the business is the ability to get low-interest rates and long repayment terms. When you’re approved, you can expect to repay the loan over several years. Depending on how much you borrow, you could end up paying over a couple of decades.
A term loan is one of the most common small business loan types because it can be used for anything. You don’t need to provide the lender with collateral, and you can borrow up to $500k. The only downside to getting a term loan is that their repayment period is typically between 5 years.
Typical business term loans can also come with high-interest rates depending on how much you’re borrowing and who it’s from. However, they’re much easier to get than most loans because you could get approved within a few days. Providing that you have good credit, you won’t need to offer collateral.
Line of Credit
Most people are familiar with lines of credit because they use credit cards. A business line of credit is essentially a credit card for businesses that can be acquired with low credit ratings. With business credit, you can continuously borrow money providing that you pay back your debt.
For example, you can borrow $5000, pay that, then borrow $5000 again. This revolving debt allows anyone to kickstart their business. The repayment terms are much shorter than most business loans, usually maxing out at 1 year, but the terms will vary depending on your revenue and credit.
Decide Which Types of Business Loans Would Benefit You
A business can benefit from a loan in a variety of ways, but you must examine the various types of business loans and determine which one you should get. Depending on your revenue and how much you need to borrow, there will be a loan that’s better than the rest.
Anyone that’s looking to borrow several hundred thousand should go for an SBA loan whereas anyone that wants to buy small things for the business can get a line of credit. If you want to borrow money for a variety of things, you could benefit from getting a term loan.
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