Different Types of Business Loans for Businesses

Business loans are one of the easiest ways a business can get funds instantly. In fact, oftentimes business loans are considered tools for businesses. Moreover, you can get a business loan despite the size of your business or the purpose of the loan.

From business expansion to cash flow management, you can easily get a loan to fulfill a business-related business. Different types of business loans can effectively help you reach different aims. This is why you must select a suitable business loan. With so many options available, it gets confusing to select the right kind of loan. So, the subject matter experts from UCAI bring you a guide to business loans.

Read along to learn about some common business loans so you can make smart loaning decisions.

5 Diverse Business Loans for Business Growth

There are different kinds of business loans, each having different features. You must understand each of these types and select the most fitting one for your business. Let’s dive in and learn about common business loans.

Term Loans

In a term loan, a business loans a certain amount at a pre-decided interest rate. This loan is then repaid over a fixed time period. A term loan is also the traditional way of loaning.

Characteristics

1. Fixed or Variable Interest Rates: The interest rate can be either fixed or variable, meaning it changes with market conditions.

2. Repayment Period: The repayment period typically ranges from one to ten years.

3. Secured or Unsecured: Term loans can be secured, i.e. have collateral, or unsecured. This factor entirely depends upon your lender.

These loans are best used for expansion projects like buying capital equipment like tools or real estate. You can also avail of such loans for balancing cash flow if you have a predictable revenue stream. This way, you can easily fulfill the repayment schedules.

Business Lines of Credit

With a business line of credit, you get a pre-decided fund. You can withdraw any amount from this allotted amount. An added benefit of this loan type is that you have to pay interest only on the amount you use.

Characteristics

1. Repetitive Credit: As you repay the funds, they become available again. it works similarly to the concept of credit cards.

2. Flexible Access: You can withdraw funds anytime up to the credit limit.

3. Variable Interest Rates: Typically comes with variable rates based on market conditions.

Lines of credit are generally used for managing unexpected expenses. additionally, If you have a seasonal revenue cycle, this kind of loan can be beneficial for you.

SBA Loans

Small Business Administration loans are backed by the government. They were with the purpose of supporting small businesses.

Characteristics

1. Various Programs: Includes many popular loan programs for real estate and equipment, and microloans.

2. Long Repayment Terms: The time span can extend up to 25 years for real estate loans.

3. Lower Interest Rates: Often comes with favorable terms and interest rates due to the government guarantee.

Start-ups and small businesses can benefit from these loans as they provide affordable terms with long terms. Businesses that want a loan with limited collateral can consider this SBA as well. 

Equipment Financing

Such a financing option can only be used for buying tools or equipment. These are a good fit for you if you require expensive tools that are currently out of your budget. 

Characteristics

1. Secured by Equipment: The equipment bought through the loan serves as collateral.

2. Interest Rates: This can be competitive, depending on the lender and equipment value.

Businesses in healthcare, construction, manufacturing, and more such industries frequently use this kind of loan. reason being their extensive use of expensive machinery. You can also choose equipment financing if you urgently need machinery but lack the necessary funds.

Merchant Cash Advances

A merchant cash advance (MCA) provides you with a loan but seeks a cut in your future credit card sales.

Characteristics

1. Repayment: The repayment is based on a percentage of daily credit card transactions.

2. Quick Approval: Faster approval and funding process compared to traditional loans.

3. Higher Costs: An MCA typically comes with higher fees and interest rates.

This kind of loan is most beneficial for retail or restaurant businesses as they have high credit card sales volume. Additionally, for businesses that need quick access to funds without a lengthy process, MCA is a fitting choice.

Conclusion

Finding the right type of business loan can sometimes be confusing. However, you must remember that the final choice mostly depends on your financial situation and business goals. So, if you need to get funds for buying equipment or managing unexpected expenses, your loan choice will vary accordingly. By understanding the different kinds of loans, you can make informed decisions and secure the best one for your business growth.