When it comes to running a business, there are various funding methods you will require to maintain and expand your business. One way to provide for your business is by taking a business loan for multiple reasons like developing and meeting the day-to-day requirements.
What is a business loan, and do companies take it?
Every type of business requires frequent financial assistance since funding entirely on your own for the growth of your business is very difficult. Usually, a loan is taken by small and micro-businesses so that they can expand their platform and run it well. A business loan is a capital amount that is offered by the lenders to the buyers with added interest.
What are the various types of business loans available?
When you opt for a business loan for your company, you need to decide which type of business loan you wish to choose for increasing your reach and growth as a company. The type of loan you choose is usually based on factors like the interest rates, money to be paid in instalments, nature of the loan, and security from the lender, etc.
Different types of business loans available:
1. Term loan:
A term loan is the most common type of loan taken by businesses and can be secured or unsecured. If the loan is secured, then it has a tenure of 15-20 years, and unsecured loans have it for 1-5 years. This kind of loan is taken for capital expenditure and the growth of your platform.
The lender gives a loan to the buyer depending on his/her financial history. This loan is supported by collateral when it comes to secured nature, and the rate of interest is either floating or fixed.
2. Working capital loan:
A working capital loan is also known as a short-term loan and is usually taken for maintaining the daily operations of your business. This loan is helpful when your company does not have a uniform and regular flow of cash to support your work.
The tenure of this loan is about 3-18 months, and this loan is generally used when your business is in great demand in the market and needs a constant supply of cash to meet the daily production cost or also when the market is down, and you need to manage your services.
3. Equipment financing loans:
Equipment financial loans, also known as machinery loans, are taken when you need a significant amount of money for buying and using various equipment for your production. This is a particular type of loan that is only focused on the machinery requirements and is not counted in the loan taken for your company's growth.
This loan will always need some security and collateral. However, the interest rates for such loans are comparatively lesser, and the tenure of this loan is of about 1 to 3 years.
4. Invoice financing loans:
This loan is also known as invoice factoring and is very useful for small businesses that need a supply of money during the time between invoices and getting payments from clients. The amount of money lent is based on the amount raised in the invoice, and the lender can give up to 80% of the amount of the invoice.
The flow of cash is instant and constant and does not wait for the client to pay the invoice amount. Therefore, the loan is cleared quickly once the debt is paid in the fixed tenure and at the decided rate.
5. Bank overdraft loans:
This type of loan is also called a Credit line, and an overdraft is provided only against collateral and security since it focuses on fixed deposits and financial institutions. In such a loan, the entire background of the person is checked before lending out money, and the amount is also finalized on that basis.
For such a loan, the charges paid are only based on the money used in that specific amount of time.
6. Supplier credit loans:
Another name for this loan is trade credit between the suppliers of goods to the buyer. In this type of loan, the supplier of goods gives you the loan on credit, and you are supposed to pay them back after the selling process. If the decided credit is not paid in the fixed tenure, the amount is changed to a higher credit that they are expected to pay at the earliest.
These are the most common types of business loans that are often taken by small businesses that intend to grow their presence without having to pull back due to financial issues. Taking a loan is a must when it comes to running a successful business and if you wish to increase and enhance your sales. Be sure to seek direct assistance from experts to avail more information about business loans.