When it comes to financing your business, there are many things to consider. Not only should you consider how much money you will need for your company, but you should know what type of loans is right for you.
In order to make an educated decision, it is essential you do your research to determine what type of a loan is right for you. That’s why we’ve outlined below the different types of loans available to you.
1. Installment Loans
An installment loan is a popular type of loan that people receive to fund their business ventures. An installment loan is a type of loan which can be used for a designated period of time depending on your needs. This loan will need to be paid back with monthly installments to the lender, and with interest. If you are not able to make the payments within the pre-determined period of time, you will incur additional fee’s. This type of a loan may not be ideal for companies that are currently struggling with funding because if you are not able to make the monthly payments you could be left with large interest fee’s.
2. Line of Credit Loans
A line of credit is one of the best, and most popular types of loans for business owners to get. This type of loan is best used to cover unexpected emergency costs. These loans help ensure that there is enough money in the bank to fund the cost and continue running the business. For this type of a loan, you will be charged interest on the amount from the time that it enters into your account up to the time that it is paid back. For these types of loans, they often carry some of the lowest interest rates with them. This means, that you can take your time with paying it back without having to worry about incurring additional fees from interest.
3. Secured Loans
In order to receive a secured loan for your business you will be required to provide the lender with some form of collateral. For example, the lender may require that you use real estate or inventory from your company to secure the funds. These types of small business loans are often given to companies where the lender may not be convinced you will be able to pay it back.
4. Unsecured Loans
An unsecured loan is a loan that is given to a company where the lender is convinced you will be able to pay it back. This means, you will not have to put up any goods as a form of securing payment. Oftentimes, this is only an option for established businesses with a proven stream of revenue.
5. Letter of Credit
A letter of credit is a loan that is typically used for international trading. A letter of credit works by using the banks credit to pay the suppliers for a set amount of time. This is an ideal situation for young entrepreneurs who need time to establish their brand before they can begin to pay suppliers.
6. Balloon Loans
A balloon loan is a term used to describe a loan that is given to a company in a lump sum. This means, you will receive the full amount of the loan once the contract is signed. This is an ideal solution for companies that require a large sum of money to cover costs in a short amount of time. Although this may be an ideal solution for business owners, there will be a balloon payment due at the end of the term.