Business Loans and Your Small Business Needs
Starting and maintaining a small business requires access to capital, and being able to secure a loan can be the difference between success and failure. In the initial years, it is normal to have inconsistent cash flow on a month-to-month and quarter-to-quarter basis. Business growth, however, has a strong correlation to spending on talent, marketing, and research & development.
However, not all small business loans are the same, and depending on the nature of your business, choosing the wrong loan could potentially lead to more problems. Below we have listed six different types of small business loans and offered a general summary of each to better inform you of your options.
Long Term Loans
Long term loans, or “term loans,” are most appropriate for owners who have good credit and are seeking a large amount of capital. As such, it might not be available if you are just getting started. The application process is lengthy and there is only a lower success rate for small business applicants as the business may not have the track record to support this type of lending. These types of loans are used to buy real estate, renovate and remodel a commercial space, and other types of long term and substantial business expansions.
Short Term Loans
Short term loans are generally easier to obtain than term loans, as they most often do not require as high of a credit score and the application process is more streamlined. These loans are great for addressing short term needs, emergency expenses, reducing high-interest debt, and taking advantage of emerging new business opportunities. Short term loans have to be paid off quickly and will carry a higher interest rate than long term loans.
If you have poor credit or are seeking to improve your credit, a secured loan could be a good option. These loans are backed by assets you already own, such as your house, car, boat, etc. If you are confident in the future of your venture but can’t secure a loan with the credit you have, a secured loan could be a sensible option.
Equipment loans, as the name implies, are designed to help you purchase equipment or a vehicle for your small business. These loans are secured by the equipment bought with the loan. The terms of the loan are dependent upon the collateral, the age of the business, credit, and finances.
Invoice finance loan is a short-term loan that is offered against a business’s invoices. They are only available to businesses that rely on invoices for payments. These loans can help with cash flow issues that arise from when you ship your product to when the customer pays your invoice.
Purchase Order Financing
Similar to invoice financing, a purchase order loan is secured by the purchase order itself. Often it may be difficult to fulfill an order unless you have the available capital to produce your goods before a customer will pay for them. With purchase order financing, the lender will pay your supplier to produce and fulfill the order without delay. The customer pays the lender and the lender takes a percentage of the purchase to cover their fee and you receive the rest.
The decision to seek and accept a loan is an important one that will bring consequences, and we want to help ensure those consequences are positive. If you need any assistance making these decisions or other questions about how to start a business, please call 888-691-9319 to set up a consult with our small business attorneys, or fill out this short form to get started.