
Types of Business Loans
Whether you are operating as a start-up or want to expand, you need easy access to capital. You can apply for one of a dozen business loans. However, small business loans financing products are featured under 4 distinct categories. The categories also cover:
- Business loans for women
- Start-up business loans
- Government loans for businesses or Government Grants
- Unsecured business loans financing
- Bad credit business loans.
Lines of Credit
A line of credit works like a credit card and therefore represents a money pool – one you can borrow against when you need a specific amount of cash. This product makes it possible for you to access the capital you need when you need it.
Although they often carry high compounded interest rates, they make a difference when you need to accommodate temporary shortfalls in earnings. Lines of credit cover immediate cash demands for businesses. However, business loans offered as lines of credit are not the best choice for large purchases, such as business improvements or expansion.
Short Term Unsecured Business Loans Financing
Small business loans also come in the form of short-term financing. Instead of paying monthly installments for repayment, you simply pay back a lump sum plus fees and interest on a predetermined date.
Business owners choose short-term funding to take care of immediate business needs or emergencies. They are not meant to be paid back over a long term, as they are used to support a company financially that may need the money to make a repair, build an inventory, raise accounts payable funds, or to finish a project that will reap a quick return.
Most short-term loans are funded for under $100,000. You can get these types of start-up business loans through credit unions, banks, and similarly licensed lenders. Short-term business loans are often used by companies whose business needs are seasonal.
Long Term Business Loan
The most popular type of business loans is a long-term loan. They can be a start-up business loan or a small business loan. Commercial lenders offer long-term small business loans and larger-sized business loans so companies can obtain working capital, make major acquisitions, or get secured or unsecured business loan refinancing.
To attain business loans for the long term, you need to have good credit and a well-established business to receive loan products with a good interest rate. If your credit is not that good or your company is new, you need to show a solid business plan for expansion and growth.
Doing so will give you the ability to possibly get a long-term loan at a higher interest rate. You may also have the ability, in some instances, to apply for bad credit business loans and refinance the loan at a lower future interest rate.
Alternative Business Loans and Government Loans for Businesses
Our Government offers business loans and small business loans to cover the start-up costs for and back business loans for women. Therefore, if you meet the criteria for government loans for businesses, you can still get the funding you need. In some cases, you can precisely apply for bad credit business loans if you’ve had come credit difficulties.
Merchant Cash Advances
Some start-up business loans come in the form of merchant cash advances. When you take out a merchant’s cash advance, a lender looks at your credit card sales rather than your credit rating. They also consider the time you have been in business. If you meet a few simple criteria, you can get the money you need in just a few days, directly deposited into your business bank account. Repayment is based on your portion of daily sales.
How Lenders Usually Assess Businesses for a Loan
Especially in terms of long-term funding, lenders consider the following:
- The collateral a business holds
- The current funding of the business
- How much you have already invested in your business
- Your business credit score
- Your cash flow and revenue – cash flow is critical and revealing, allowing a lender to see how much money is coming in and going out of the business
- The age of your company
Keep the above information in mind, as you need to focus on your ability to repay the loan, assuring a lender that you can cover the debt.
Pros and Cons of Getting a Business Loan in Canada
Pros
- You can receive a good interest rate for small business financing, provided your credit is good and you can prove you can repay the principal and interest, plus any loan fees.
- You can fund your business, or add capital, immediately – always helpful when getting startup business loans and financing.
- Even when your company is profitable, taking out business loans can help you add business amenities that will enhance your business’s offerings or increase its assets.
Cons
- The interest rate can be higher if you take out an online loan or obtain an unsecured loan.
- If you take out a collateralized or secured loan, you stand to lose one or more business assets (real estate, equipment, or furnishings) if you cannot repay the loan amount.
Frequently asked questions
How do I get a small business loan?
When should business loans not be used?
Can I apply for a small business loan online?
How do I get a first-time business loan?
What will I need to do and provide when I apply to business loan lenders?
How Do I Create a Business Plan for Funding for Startup Business Loans?
Conclusion
Do you need approval for financing your business? The above information will give you the information needed to excel in your field and provide the best services and products in your industry. Use business loan funding to open up new doors for your business financially.