Business loans for small business are typically used to start a business, purchase inventory or equipment, purchase real estate, or expand an existing business. According to a report released by the National Small Business Association, about 75% of small businesses were able to access adequate financing at the end of 2017. The funding options include loans, credit cards, venture capital, and crowdfunding.
Types of Small Business Loans
Term loans: A business term loan provides a lump sum with a fixed term and repayment amount.
Business lines of credit: Business lines of credit are similar to credit cards, offering a lot of flexibility. The lender approves the borrower for a revolving line of credit with a maximum limit with interest charged for the amount drawn and not on the maximum limit.
Equipment loans: Equipment loans can be used for purchasing and spreading out the cost of a large piece of machinery or equipment for the business. The equipment usually serves as collateral for the loan.
Invoice financing: Invoice factoring is an arrangement where the borrowers (businesses) sell their invoices to a lender at a discount. The lender subsequently provides the business with the majority of the amount owed on the invoice upfront and hold a portion of the outstanding amount (usually 20%) until the invoice is paid.
Merchant cash advances: A merchant cash advance provides businesses with cash to meet their urgent financial obligations. Here, the lender provides the business with a lump sum of cash in exchange for a portion of future sales.
Commercial mortgage loans: The money borrowed from a commercial mortgage loan can be used to acquire, develop or refinance commercial property such as a warehouse, mixed-use building or retail center.
Franchise loans: These loans are for business owners that intendto purchase or expand a franchise. Franchise loans can be used for standard business opening expenses and franchise-specific expenses such as marketing fees or the franchise fee, which is paid upfront to open a franchise.