Understanding Types Of Business Loans
The ability to access capital to run a small business or set up a new business is crucial for owners. For such financial support, either we need investors or the bank for loans. But for small business plans, getting investors is not a good idea, so the question arises of what type of loans should we choose for a small-scale business setup. Below are four common types of small business loans available in the US market.
Long-Term Loans
Long-term loans are the most common type of loans given by big distributors offering a long-term plan from 3 years to 10 years. This is extended even more in some cases. The loan finances your business with funds at a cheaper interest rate than a short-term loan and allows you to repay it over several years. Long-term loans are easier to get with effective business plans and firm growth plans.
Short-Term Loans
Small business owners choose short-term loans to meet up with emerging opportunities for growth and expansion. Short-term loans for small businesses have term plans of 3 months to 12 months or may extend to 18 months provided at a higher rate than the long term. This type of loan is designed to provide quick loans and a fairly quick repayment plan. Short-term loans help to improve the credit profiles of small businesses, which may help while applying for long-term business loans. Short-term loans are offered for approximately $100,000 or lower.
Lines Of Credit
A line of credit for a small business resembles having a small business credit card. It allows businesses access to funds as the need arises instead of getting a lump sum of funds all at once. The interest rates are pretty high but funds can be used in an emergency by small business owners. A line of credit for small businesses is the best solution for unexpected hardships or similar unprepared opportunities. It gives a line of credit for sums ranging from approximately $10,000 to $100,000.
Alternative Financing
Alternative financing means applying for loans from any online lender other than banks. These are asset-based loans, crowdfunding resources, or peer-to-peer loans. It is a significant eye-catching benefit for small business owners. It provides instant funds to meet cash shortfalls or small-scale expansions of a small business. Alternative financing is the best option to use instead of turning toward the banks and investing tons of time in lengthy processes.
However, deciding on the right loan for your business and qualifying for it requires many factors. Once you decide, you need to plan on how to go about securing the loan. Regardless of the options in the market, the U.S. National Federation of Independent Businesses found that only 32% of small businesses could qualify for these loans. So business owners must obtain more and more knowledge about their options for supporting their small business’s financial goals.
