If you need capital for your business, then you’ve no doubt heard about the prevalence of business loans – every year, millions of entrepreneurial Americans use them. Debt financing is a big thing; and has helped plenty of people achieve their dreams of financial liberation.
You have many options, of course; and that’s not even including credit cards and other types of secured loans. As for unsecured loans, where collateral is required but the rate of interest tends to be lower, there are even more options available. The website, businessloans.co, connects countless entrepreneurs every month to business loan solutions that are tailored to their particular needs.
In the following article, we take a look at some of the different types of business loans that are available to the consumer.
The Installment Business Loan
It’s important to know the utility of an installment loan to your credit profile. Although you’re borrowing money similar to the usage of a credit card, the installment loan appears as a separate factor in your credit report. This means that it can help raise your credit score if you have both a revolving line of credit and a business loan – which is why it’s a favored means of lending by people who are trying to rebuild or boost their credit.
With an installment loan, you’re given the full amount once the formalities are met. The monthly payment – sometimes quarterly, depending on the contract – includes both the interest on the principal, and a fraction of the principal. It’s divvied up so that everything is to be paid off at the end of the agreed-upon term – although you can pay it off sooner with no penalty.
Low Interest Rate Line-of-Credit Loan
This is arguably an essential form of debt for any SMB (small-to-medium-sized business). The primary benefit it confers is the availability of capital for inventory needs and other operating costs. It’s almost like an emergency relief fund for business, in case there’s a business cycle in which cash is needed quickly – such as if you need to cover checks during an economic downturn, but expect to bounce back next quarter or next year. All businesses should look into establishing a line-of-credit loan as an option.
A Different Kind of Installment Loan – the Balloon Loan
Structurally similar to the installment payment, the balloon loan has one significant difference: you only have to pay the interest for the specified loan term. Of course the full principal has to be paid eventually, and this usually happens in the last month or quarter of the loan term. Clearly, this can be a very beneficial loan type to a business that is eventually successful; but if your company falls flat and isn’t profitable by the end of the term, you could be in financial straits.
Some balloon installment loans will even defer the interest payments for a time, allowing you to settle all payments in one balloon – hence the name – payment. Obviously, create reliable projections as to when your company will have the funds before you agree to this type of installment loan. For more information on the process, check out NerdWallet’s article on How to Get a Business Loan.
International Trade Loan Type – Letter of Credit
This type of loan makes conducting international trade a bit easier. In it, the lender promotes itself as the guarantor of any business loans needed by the sole proprietor or company – this is deemed more trustworthy than the person’s own guarantee. You work out the details of the line of credit limit with the lending institution (usually a bank), and the bank effectively acts on your behalf.
The Interim Loan – A Short Term Financing Option
As a growing business, you need a wealth of options when it comes to funding; the interim loan is best suited to property purchases, in general. The usual range of repayment spans several months to five years, and offers some of the lowest monthly payments you can get on any loan of any type. If there’s one downside, it’s that there are usually prepayment penalties (if you decide to pay back the principal before the loan term is up).
This makes sense from the point of view of the lender, since the loan does not amortize – which is what makes the monthly payments so low. In a sense, they are providing a “better deal” than your credit history suggests you should receive. The bank knows it will get the principal back in full at the end of the payment term, however. If you get an interim loan, be advised that you can often extract yourself from any prepayment penalties by simply agreeing to use the same lender for future loans.