There are many sources of debt financing for your business. The common ones include banks, business creditors, commercial lenders, and credit card companies. Before you visit any lender, it is advisable to know the different types of loans available. Here are the most common ones.
1. Line-of-credit Loans
These loans are the most common and can shield your business from cash flow issues and emergencies. Line-of-credit loans provide help with operational, inventory and business cycle needs. You cannot apply for these loans to buy assets like real estate or equipment. The lenders charge interest for the loan until you pay it back fully.
Line-of-credit loans attract low-interest rates since they are low-risk. Some lenders, however, reserve the right to cancel the loan or reduce the loan limit depending on the situation. You have to pay the interest every month. The principal is typically payable within one year. Most lenders ask for financial statements, tax reports, and cash flow projections before approving the loan.
2. Installment Loans
Both the principal and interests are paid back with equal monthly installments. These types of loans suit different business arrangements and the interest is calculated from the day you receive the money to the last day of the loan repayment period. The repayment period may vary from a few months to 21 years depending on your business needs.
3. Balloon Loans
Different lenders give these loans different names. The applicant receives the full amount after signing the contract but only pays the interest during the loan period. The principal is due on the last day of the loan period. It is similar to an installment loan, but it is reserved for businesses that have to wait until a specific time to receive money from clients.
4. Interim Loans
Interim loans are reserved for paying contractors that build business facilities. The mortgage on the structure under construction covers the interim loans. Most lenders consider interim loans when they are concerned about loan payment and the commitment of the applicant.
5. Secured And Unsecured Loans
Loans fall into these two categories. If the lender trusts you and your business, they may write an unsecured business loan. There is no collateral or secondary payment source. You can only access secured loans if you are new to the lender.
If you need a business loan, your preferred lender can help you choose the right one.