Types of Business Loans

There are 7 types of business loans available for business owners, including business lines of credit for general business expenses and SBA loans. Small business loans can be used for many reasons, including covering everyday costs such as payroll, rent, and marketing. This article discusses the most popular types of business loans to finance operating expenses.

A small business loan may be the right choice for a business owner who operates a startup and needs to cover the cost of incorporation fees, commercial real estate, inventory, and other initial expenses. If a business owner owns an established company, the best types of small business loans can help them expand their business to new locations or make other long-term investments.

When business owners research the available types of business loans, they will most likely come across different working capital choices. Our Los Angeles small business attorney identified 7 types of business loans that a business owner may wish to consider:

1. Term Loans

A business term loan is a lump sum of money you borrow from a lender, then pay back over a period of time, with interest. A business term loan is one of the most common types of business financing. Financial institutions like banks, online lenders, and credit unions provide term loans to entrepreneurs. If a business owner gets a term loan, then he or she will receive a lump sum of cash upfront, which they must repay over time in the form of fixed monthly payments. If a business owner applies for a bank loan, then he or she will need to have a strong credit score. Other lenders, however, often have less strict requirements when it comes to credit.

Before looking for a small business loan, a business owner should study the lender’s other requirements. These may address an entrepreneur’s time in business, existing debt, monthly sales, and other financial elements.

2. SBA Loans

A SBA loan one of the most common types of business loans for small businesses. The Small Business Administration (SBA) partially guarantees this type of loan. When compared to other kinds of loans, SBA loans offer large amounts of funding and longer repayment terms that a business owner may not be able to match elsewhere. Some of the most popular SBA loans include:

• Standard 7(a) loans
• 7(a) Small Loans
• Export Loans
• SBA Express Loans
• Veterans Advantage Loans
• CAPLines

3. Commercial Mortgage

A commercial mortgage loan is one of the most common types of business loans for buying commercial property. Commercial property mortgages are generally long-term loans, up to 20 years, and provide the money to buy an office building, apartment complex, industrial warehouse, or shopping center.

A commercial mortgage is a good option if a business owner needs to buy property or land to operate his or her business. This kind of small business loan is also known as a commercial real estate loan. The program can help a business owner pay for a hotel, retail space, restaurant, office, or warehouse. It can also be used to renovate a current commercial property that a business owner possesses.

4. Equipment Loans

A equipment term loan is one of the most common types of business financing for buying business equipment. A business most likely relies on equipment to conduct its operations. An equipment loan is a useful option for a business owner who needs to afford office equipment such as computers, scanners, or heavy-duty equipment like tractors and bulldozers. The equipment will serve as the collateral for the loan so that a business owner can qualify even with fair or bad credit.

5. Lines of Credit

A bank line of credit is one popular types of business loans that lets a business borrow up to a certain amount of money and pay interest on the amount borrowed. A line of credit may be a good option if a business owner is not sure how much money he or she will require for their business. He or she may establish a set credit limit from which they may withdraw funds as needed. This limit will depend on one’s credit or other financial factors. This is a great alternative to traditional bank loans, which offer a set amount of money at a single time.

6. Business Credit Cards

Many types of business loans come in the form of a credit card. There are many business credit cards that a business owner can use to cover everyday expenses such as office supplies and rent. Usually, these credit cards offer benefits such as travel points, cash back, and gift cards. Some of these cards also come with 0% introductory offers, which a business owner can use to fund big expenses without having to pay interest.

7. Invoice Factoring

Invoice factoring is when a business owner chooses to sell his or her invoices at a discounted rate to a factoring company. After the business owner gets a lump sum of money in advance, the company will own the invoices and collect payments from customers. This typically happens within 30 to 90 days. Invoice factoring may be a good option for a business with customers who take a long time to pay. This option can help a business owner avoid issues with cash flow.

Conclusion

Comparing the different types of business loans can help an entrepreneur get the funding he or she needs to succeed with their venture, whatever the industry. That said, prior to committing to a loan program, a small business owner should be sure to study all available financing options, as well as to read the fine print attached.