The Different Types of Small Business Loans
There are several types of small business loans, and each of them offers unique features and benefits. This post provides information on some of the most popular types of small business loans, including:
· Business term loans
· Equipment financing
· Accounts receivable financing
· Merchant cash advance
· Business line of credit
· SBA loans
Business Term Loans
Term loans are standard bank-type loans, typically offered by traditional banks or financial institutions. This type of small business loan provides a lump sum of funding upfront, which your business repays along with interest over a predetermined period. The lender generally determines the loan's associated interest rates and terms by assessing the small business's creditworthiness and overall financial stability.
Equipment Financing
Equipment financing allows small businesses to acquire the equipment they need to run without requiring a significant upfront investment. You can repay the loan over the useful life of the equipment, and certain plans enable you to align payments with the revenue generated from the equipment’s use. Additionally, the equipment itself may serve as collateral for the loan, reducing the need for other collateral.
Accounts Receivable Financing
As many small business owners can attest, getting your clients to pay invoices on time is not always easy. Accounts receivable (AR) financing, also known as invoice financing, lets small businesses borrow against outstanding invoices. Companies can borrow a percentage of the invoice value upfront and repay the loan as the invoices are paid. AR financing can particularly benefit small businesses with long payment cycles or those experiencing rapid growth.
Merchant Cash Advance
A merchant cash advance lets small businesses borrow against projected future credit card sales. The repayment plan is structured as a percentage of the business’s credit card transactions; therefore, the more credit card sales your business generates, the faster you pay off the advance. Small businesses with fluctuating revenue or seasonal sales patterns commonly use merchant cash advances.
Business Line of Credit
A business line of credit provides small businesses with funding you can access as needed. Basically, a business line of credit functions as a non-physical credit card. As your business borrows funds from the line of credit, it incurs interest on the outstanding balance. One of the key features of a business line of credit is its renewable access to funds. This means that borrowed funds can be replenished as they are repaid; as you make payments towards the outstanding balance, those repaid funds become available again.
US Small Business Administration (SBA) Loans
There are various types of SBA loans, including:
· Investment capital
Obtaining the Ideal Small Business Loan With Fairway Funding
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