Small businesses consist of a large portion of the workforce in the US. One way to fund the endeavors you need to ensure your small business contributes to this is by taking out a business loan to pay for new equipment and keeping enough working capital on hand. Here is the information you need to know to find the perfect loan option for your company that can keep your business growing.
1. What Are They?
Business loans are a source of financing companies can receive from banks, credit unions, and online lenders. While you should always research and read a Headway Capital review beforehand, you can usually use the funds from loans to cover operating costs, grow your business, keep plenty of working capital on hand, purchase equipment, or purchase real estate.
2. How Do They Work?
Business loans can provide a lump sum or a line of credit. In exchange for the money, you must repay it over time, with interest and any fees. The type of loan you choose determines whether you have to make monthly, weekly, or daily payments.
3. What Can You Use Them For?
You can get loans for a lot of different purposes. However, when you submit your application for a loan, you must specify what you will use the funds for and stick with this. Some of the most common uses are:
- Startup costs
- Purchasing or remodeling facilities
- Covering daily expenses
- Consolidating debt
- Purchasing equipment.
4. What Are the Most Common Types?
The most common types of loans include Small Business Administration, term, and working capital loans. That said, business lines of credit, merchant cash advances, invoice factoring, and equipment financing could better fit your business in some situations.
5. What Are SBA Loans?
SBA loans are backed by the SBA, guaranteeing that part of the money will be returned to the lender. That lowers the lender’s risk, making them more likely to distribute funds to business owners they might otherwise not fund.
6. What Are Term Loans?
Term loans are repaid over an established period. These are the ones you get from banks or online lenders. However, if you are a newer business, you should consider applying to an online lender because they tend to be more lenient regarding qualifications.
7. What Are Working Capital Loans?
Working capital loans are shorter and usually come in credit lines or invoice factoring, which helps businesses cover operating costs, like payroll. If you have a seasonal business, consider this during the slow season.
8. What Are Business Lines of Credit?
Business credit lines are the best option if you don’t know how much money you need to borrow. Typically, you can access anywhere from $2,000 to $250,000 whenever you need it. The most significant benefit of this type of loan is that the amount you can borrow increases whenever you repay, but you only have to pay interest on the current amount you owe.
9. What Are Merchant Cash Advances?
Merchant cash advances are a great short-term loan option if you need cash fast. With this, you would provide your lender with a portion of your future sales in exchange for a lump of money. You will repay the amount borrowed, plus fees, from your business’ income daily or weekly.
10. What Is Invoice Factoring?
You should consider invoice factoring if you use invoices to bill companies who purchase from you. With this funding, you sell your unpaid invoices to your chosen factoring company. They then pay you a chunk of the outstanding invoices and assume responsibility for collecting funds. After they collect this, they pass you the remaining funds, minus their fees. Factoring fees typically fall between .5 and 5 percent for every month an invoice is unpaid.
A business loan can help you grow your business or keep it afloat during trying times. However, knowing your options is the best way to ensure you get the right fit for your company.