“Every decision that you make for your business has a financial consequence.” – Barbara Vrancik.
The life of an entrepreneur is very simple. They start a business with the help of an idea and finance; once the company is established, they begin to earn money, and then they use the same money to expand their business. And this circle goes on.
So, if we eliminate money from the entrepreneur’s life, they are left with an unexecuted idea. Was it an excellent idea or not? We don’t know, and we can never know. Confused? Okay, we’ll explain it clearly to you. What we want to say is that without money or finance, a business can not survive.
Arranging money for the startup is the most crucial yet challenging part. And if anything in this part goes wrong, its direct impact can be seen on the startup idea. However, along with arranging capital deciding its source is also essential. Generally, people take the help of banks or money lending institutions to borrow a loan. And it is the correct approach.
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But, what type of loan should be taken is the question of primary concern. You see, there are numerous types of loans available for an entrepreneur, but selecting the right option is vital. Therefore, in this article, we’ll guide you through the different types of loans available for small business entrepreneurs.
You can read them thoroughly and then can decide the best for your business. So, let’s dive right into the article! Let’s go!
These are the most basic types of business finance, which are repaid over a fixed tenure with interest. The amount is generally paid in a lump sum, and the repayment principal amount is also fixed. It is just like a personal loan that you can use for any purpose. You can use it to pay company overheads, payment to creditors, invoice payments, or employee salaries. To be specific, it is flexible to use.
Not every organization works to sell products or services. Some organizations are involved in the manufacturing process as well. And to manufacture something large heavy-duty equipment, machinery, vehicles, etc., is required. Needless to say that this equipment is expensive, and an organization can’t afford them with the capital investment.
In such a situation, you can use equipment financing. It’ll also help improve business credit and not forget that the asset can also be used as collateral to get more finance.
SBA loans are federal government agency-backed financial borrowing options available to small entrepreneurs. In fact, it won’t be wrong to say that Small Business Administration Loans are one of the best types of financing options available to budding entrepreneurs. Why? The reason being is that the rate of interest is comparatively low, the repayment terms are also favorable to the borrower, and it is flexible.
If you think that’s all, then our dear reader, sorry to say that you are wrong. It is just a glimpse of the benefits of SBA loans. These loans are further also divided into different types. As per your requirement, you can select any of the following types and avail yourself its benefits:
- SBA 7(a) Loan
- SBA express
- SBA Disaster Assistance Program
- SBA International Trade
- SBA 504
- Community advantage
You can read about each of these and decide which financial assistance will help you achieve your company goals.
Sometimes a company needs money to balance the current cash flow. There are several types of company overhead that need to be paid daily, such as payment to suppliers, employee salary, and other daily operations. To make these payments, the company needs positive cash flow. But sometimes circumstances are not in the favor. In such situations, invoice financing can help companies overcome the cash crunch.
It is a great option when an entrepreneur is sure that he/she will receive the payment in some time and, in the meantime, use this financing to mitigate cash flow emergencies.
Merchant cash advances
To say that is a business loan would be incorrect. It is a cash advance that you can get on your future credit card sales, just like the old times. In simple terms, you’ll get a lump sum amount as a cash advance and have to repay it from the money earned from sales. It is a good option if you need fast cash because, as compared to others, the interest rate is relatively high in it.
Note: This financing option is only available to those businesses that use credit cards for payments.
As the name suggests, it is a type of small loan that ranges from $500 to $50,000. This option is suitable for those who are starting their company or don’t need much investment. These are generally offered by the federal government and non-profit organizations such as CDFIs (Community Development Financial Institutions) to underserved startups to get the capital amount they need. Nonetheless, the repayment terms and interest rates are reasonable in this type of borrowing, and there is flexibility for using the amount as entrepreneurs want.
Business line of credit
Also known as “revolving line of credit,” this type of borrowing is perfect when the borrower doesn’t know about the amount required. Getting confused again? No worries! We’ll explain it in easy language! Generally, few organizations face the issue of seasonal fluctuations. So there is a possibility that for a month or two the sales will be lower than expected. To survive those times, organizations can take the benefit of the business line of credit.
However, you’ll be able to receive this amount only when the lender evaluates the creditworthiness of your business. And, for that, they will get information regarding the time in the industry, annual revenue of the company, cash flow situation, credit score, and others. When the lender is satisfied, they will give you the money.
To sum it all up!
All these types of credit borrowing options are available to the company, and you can select among these as per their requirements. It will help the company to stay in the competition race and grow its business.
So what are you waiting for? Take your company to heights!