Money is the backbone of the business and it is required either to start up a new business or to clear the debt. In, both the scenario you will have to avail the loan and this is an ideal platform to refinance your debt. But you just need to pinpoint the type of loan you need for your business because of varieties of loan available in the financial market. However, if you are unaware of the types of business loan, then don’t worry as here you will find the comprehensive information of the same.
Types of Business Loan
Business Line of Credit
The Business Line of Credit is just like the credit card and through the same, you can fulfill your business requirement such as the purchase of inventory, maintain capital flow and more. But, the line of credit depends upon your small business revenue and the best part is the easy availability of the money. It is a short-term loan and can be accessed multiple times only after clearing the past due. To avail the same, you can move to the bank, but make sure that the funds offered by the bank in form of Business Line of Credit differ from bank to bank, so you will have to find the one where you can get maximum benefits of the Line of Credit.
In Business Line of Credit, you don’t have to pay the interest rate, but if you fail to clear the due then you will have to pay the penalty. In the line of credit, there is repayment flexibility and once your business need is fulfilled, you can stop using the Business Line of Credit but before that, you will have to pay the used debt.
Part Payment Loan
This is also termed as an Installment Loan where the amount is given for a specific time period and you will have to pay the principal amount and interest rate together in part monthly, you can also say EMI to be paid against the loan amount. In this type of loan, you will get the lump sum amount one at a time and soon the interest rate reading will start and will stop at the end of the repayment tenure. However, if you fail to pay the monthly EMI, then the bank will send you a notice and if you repeat the same offense then the bank will charge a penalty against you.
So, make sure to pay the part payment on time. Well, if your small business earns good profit and you want to clear the pending amount all at once, then you can do the same and this is a unique feature of this Loan.
Balloon Loan
In balloon loan you will have to pay only the interest against the small business loan and principal amount will be paid on the end day of the loan tenure. It carries a low-interest rate so it is very helpful for your small business loan. Balloon Loan tenure is 5-7 years and the monthly payment structure is quite different from the conventional loans because you will have to pay only the interest in between the given time period and at the end of the period you will have to give the principal amount. This unique feature can be utilized in refinancing the debt or to maintain the capital flow.
Bridge Loan
It is one of a kind of short-term loan which helps the small business to meet the short-term needs until a long-term loan is finalized. This loan increases the flow of liquidity and the duration of Bridge Loan is 1 year and the rate of interest is higher compared to other loans. Bridge Loan is given to the small business owner against the collateral which can be assets or an inventory.
Bridge loan minimizes the financial gap and the business owner can avail such loan when the long-term loan is in the queue and the financial need is in increasing. For example, if you own a business and already applied for a long-term business loan but you need to manage the present expenses such as payment of working capital, rent staff salary, inventory cost and more, so at this stage, a bridge loan can be used.
Bridge Loan is more in demand than the traditional loan because of the speedy process, fast application process and smooth funding feature, but it lacks in some field, i.e. high-interest rate, short-term loan, and high fee. But, the borrowers overlooked the demerits of the bridge loan because of their short-term business needs. They are ready to pay the high fee because they know that the repayment duration is short and it is an easier method to fulfill the business need.
Secured and Unsecured Loan
If you have assets and an excellent credit score, then you can avail the secured loan. In secured loan the interest rate is low and the lender always seeks for the collateral, so if fulfill the required demands of the lenders then you can easily get the secured loan. The loan amount can be used to maintain the capital flow, inventory purchase, and more.
In case of unsecured loan, you will have to pay higher interest rate against the loan and you will not need any collateral. If you fail in getting the secured loan, then you can try for the unsecured loan and can go for the online platform to find out the lenders.
Inventory Loan
As the name itself defines the meaning, means the loan amount can be used to purchase the inventory. If you have started a small business, but failed to manage the capital for the inventory then you can go for the inventory loan. The collateral against the loan will be your business or assets.
SBA Loan
Small Business Association is a Government firm who provides support to the business owner. SBA has certified lenders who provide loan to the borrower and SBA acts as a guarantor. There are various types of loan and you can choose the one as per your business need.
Hence, these were the types of loan which you can avail to boost your business. Now, it will be an easier task to select the loan to fulfill your business needs. So, choose the loan wisely and make sure it fulfills your requirements.
