The success of any enterprise or startup depends on its financial strength. Be it its set-up, expansion, or to maintain day to day transactions, finances cannot be ignored. Also, another fact is that no venture can manage its finances all on its own. External sources of receiving funds become vital for the timely growth of the business. Amongst all the other external sources of generating funds, loans are the most common and widely used by entrepreneurs all around the world. In this, the organization lends the required sum from banks, or merchant bankers, and they have to pay back the principal amount and the interest in a certain period.
Types Of Business Loan Options
Broadly, there are six types of business loan options. Each type has its merits. It’s essential to select the right kind of loan product after analyzing different factors that can affect them.
- SBA Loans: SBA facilitates entrepreneurs to get loans through lenders. These lenders might not have lent money to this business earlier. But SBA is a government organization. Hence the risk is reduced for the money lenders. They are willing to allow credit to the enterprise because they are sure that they are not under any threat. The interest rate is quite low, with monthly repayment options. But the criteria to qualify for a loan under SBA are strict.
- Business Term Loan: These offer both short as well as long term loans as per the requirement of the company. They do not have many formalities, and procuring this loan is just a matter of some days. The rate of interest depends upon the loan tenure.
- Business Line of Credit: It is similar to the working of the credit card. There is a limit to which you can borrow money. One can obtain a certain sum and has to pay interest only on that sum. This factor provides much-needed flexibility to the company. These are generally used for short term purposes and are best for emergencies.
- Invoice Factoring: It is quite different from other types. In invoice factoring, the enterprise can generate funds by selling its invoices at lower prices to factoring companies. Invoice factoring works in exchange for a lump sum amount. After that, the factoring company gets paid by the customers of the business. This payment happens in about a month and a half. It is an excellent way to deal with some unpunctual clients.
- Merchant Cash Advance: This is comparatively a newer form of advancing funds. In this, the merchant cash advances provide funds to the business in exchange for a fixed percentage of the company’s daily income. These kinds of lenders have a very high rate of interest. Application for this type of loan doesn’t require a lot of money. One can get the lump sum as and when needed.
- Equipment Financing: These loans are for specific purposes. These loans are taken to purchase equipment for the company. The amount of money lent depends on the machinery’s value. One has the facility to use the machinery while paying back the loan. The person gets ownership of the equipment as soon as he pays off the amount taken.
There are various types of business loan options. The type of loan matters a lot in deciding the company’s financial success. So, it becomes crucial to make the correct decision in this regard. The Business Backer is the solution to all such problems. It provides reliable, quick, and affordable services in selecting a suitable type of loan for your business. Don’t take a risk in making such a crucial decision for your company. Go for The Business Backer and see your venture grow.