Guide to the Different Types of Business Loans
When you’re launching your business, it can be difficult to get financing. Banks tend to be cautious with small business loans due to the high risk of failure. There are other options available for small businesses that want funding, however. Business loans are available from a variety of sources and come in many different forms.
Here is an overview of the different types of business loans and the conditions you will need to meet before applying for them. Whether your business is just an idea or a fully operational concern, funding will almost certainly be necessary at some point during its lifespan.
The financing required will depend on your specific needs and circumstances as an individual or company; this article aims to give an overview of the various loan options out there, with a more detailed look at some of the main points you should know about each type of loan if you’re considering applying for one as part of your business venture.
What is a business loan?
A business loan is a type of financing that lets you borrow money to help fund your business. They are different from business credit cards and lines of credit, which are more like credit cards for businesses. Business loans generally have fixed interest rates and fixed repayment schedules.
There are many types of business loans available from different sources, including banks, credit unions, and peer-to-peer lending websites. You can use business loans for many different purposes, such as buying equipment, financing a new franchise, replacing an old van, or expanding an existing business.
The amount of a business loan vary depending on the type of loan and the lender, but you can typically expect to receive an amount between $5,000 and $500,000.
Business loan instalment purchase (BPI)
This is a loan that is important for the life of a business. The lender will issue you a statement of funds to pay your monthly expenses and then will give you an amount to put towards purchasing equipment. The loan is usually for a period of one year and apply for any type of business for up to five years.
BPI loans are generally easier to get because they are usually more flexible and less expensive than a regular business loan. These loans are generally only available to people who have at least $100,000 in assets or a net worth of $1 million or more. BPI loans are typically for the purchase of equipment, such as computers, printers, and other office equipment.
You can use these loans for any type of business that you want to start up. You do not need to be an investor or take out a loan from your own company to qualify for BPI loans. And you can use BPI loans on your own business if you have the capital and know how to acquire the funds needed for it.
BPI loans are generally only available after you have met certain requirements set forth by the lender. Such as having a net worth of $1 million or more, being able to pay your monthly expenses within 30 days (of which at least 10 days must be spent on equipment purchases), and having enough capital and resources to cover all monthly expenses during the time period that they will be paid off (the time period usually depends on what is being purchased).
Equipment loans generally go towards the purchase of new equipment or machinery. You should be able to purchase the equipment before applying for a loan. And the lender will hold the title of the equipment until you repay the loan.
The total amount that you can borrow is usually between 50-90% of the total value of the equipment, and repayment terms of 2-10 years are typical. Small business owners can borrow against the equipment they already own, or they can use an equipment loan to purchase new equipment.
Business ownership loans
Business ownership loans are for business owners to buy a piece of their business and become partners in the company. The lender will usually require that you have a significant amount of equity in your home to complete the loan.
The interest rate and repayment terms are similar to that of a mortgage, and the loan length is between 5-20 years. You will have to repay the equity amount at the end of the loan.
Working capital loans
Working capital loans are for companies with quick-growing demand and receivables. Both small and large businesses can apply for this type of loan. The amount that you can borrow will vary based on your company’s cash flow and financial statements.
Small business loan advantages
These loans are ideal for small business owners who do not have the credit history to get a business loan through a bank. Credit unions and online lenders will often approve these types of loans.
Also, compared to other types of small business loans, many of these lenders provide quick and easy applications.
Final words: Takeaway
You can use business loans to purchase equipment, make repairs to your building, fund a new franchise, or expand an existing business. There are many different types of business loans, each with its own set of terms and conditions.
Small business owners can get an approval for quick and easy applications for these loans because they don’t have to have a great credit history to qualify.