As your business grows, it will have to be financed with more money. Even though it would be best if that money came from the business’s own profits, it doesn’t always work out that way. This could be because you’re having trouble with cash flow or because the money you’d need to expand is a lot more than you can make right now, and it’s the expansion that will lead to a big jump in your profits. The good news is that it is usually possible to get a business loan, though it will depend on your financial situation. If you use the loan to grow your business, the extra money you make should be more than enough to pay back the loan and interest. So, what are the different kinds of loans your business can get?
Line Of Credit
The adaptability and convenience of a line of credit loan make it a great option for small enterprises. It is a simple short-term loan that deposits funds directly into the business’s bank account. This is generally a good thing and will save money over the long run compared to the alternative. These could be the solution when clients are taking too long to pay and money is tight. You should still have enough money to pay your own suppliers on schedule, even if one of your customers is late with a payment. Obtaining a loan of this type can help you accomplish that.
Keep in mind that the money from these loans is only for day-to-day expenses like commercial truck insurance; they are not a way to finance the purchase of any fixed assets. The interest rates on lines of credit are often quite high as well, so although they are a good stop-gap, they’re not something you should rely on for the long term.
When thinking about loans, the type of loan that likely comes to mind is an installment loan. You request a certain sum of money from a bank or other lending institution, and then you pay it back over time, usually monthly. What you owe consists of the principal loan amount plus interest. The interest rate you are offered will be based on the lender’s assessment of the risk associated with lending to you; but if you have a good credit score, you will be eligible for some very attractive offers.
Even if you have bad credit, you may still be able to get a loan, which can be a good idea as long as you know you can pay it back. Installment loans work well because they are set up for a certain amount of time. This gives you a goal date to work toward. But keep in mind that you may have to pay fees if you pay off the loan early.
If you have bad credit and can’t get a business loan for your business, or if you need the money fast and the business loan would take too long, you might want to look into a personal loan. You can get the money you need right away, which you can then put into your business. But it’s important to make a plan for paying it back, and if you can, talk to a lawyer or accountant about how to make it official. If you don’t, you might find that you have to pay back your own loan but don’t get any money from the business.
This can then make things hard for both sides. Getting a personal loan can be a good way to help your business as long as everything is written down and followed. This is especially true if you have good credit and can get a good interest rate.
A balloon loan is similar to an installment loan, except that you don’t pay a set amount each month until the loan is paid off. Instead, you pay a set amount each month until a certain date, when the rest of the loan balance is due all at once. It’s called a “balloon payment.” This can be a great loan to get if you know your business will get a large payment or investment that will allow you to pay off the balloon in full. Your loan will be much shorter than it would be with a normal installment loan, so you could save hundreds or even thousands of dollars in interest.
If the promised payment doesn’t come in on time, you might be able to renegotiate the loan to get more time or switch it to a regular installment loan.
Secured Or Unsecured
A loan might be secured or unsecured, depending on the lender’s criteria and your personal or company’s circumstances. If your lender has faith in the success of your firm and your ability to repay the loan when it comes due, they may extend you an unsecured loan. It means you don’t have to put anything up as collateral in case you can’t pay back the loan. If you qualify for an unsecured loan, it means the lender considers you to be a low risk borrower. A secured loan is the best option for people who are perceived as higher risk.
To qualify for a secured loan, you often need to pledge an asset as security. Should you default on your loan payments, the collateral will be liquidated to satisfy the debt. Typically, this refers to a piece of real estate, although it could also be a vehicle or piece of machinery. If you know you can repay the loan without any issues, a secured loan may be the best option to save money even though you may prefer the “safety” of an unsecured loan.
Even though it’s not called a loan, an investment from a third party is a loan. The investor will give you money in exchange for a share of your business. Then, when the company starts making money, they will get their money back plus the percentage they “bought” when they put their money in. This can be expensive, especially if the investor will only work with you if they get a bigger share of your business. However, since you don’t have to pay anything back until your business makes money, it gives you a little more breathing room than a traditional loan.