You have many options when it comes to taking out money for your business. You can take out a business loan from a bank, commercial lending companies, and even use your personal credit card. Before taking out a business loan, you have to make sure you are aware of all of your options. Below are the types of loans you can take out and a few information on each of them.
Line-of-credit
A line of credit is an essential and beneficial loan for small businesses. It’s designed to keep the company protected during emergencies and delayed cash flow. Its benefit is to cover ordinary operating costs, payroll, and getting inventories restocked.
A line of credit loan has the lowest interest rates compared to the other types of loans, and it usually runs for a term of one year. This type of loan allows you to pay the interest monthly throughout the loan, but the principal can be paid anytime – provided it’s paid off within the period of the loan.
Installment loan
This type of loan requires you to make monthly payments in equal amounts to cover both the principal and the interest. It is the simplest type of loan I’ve seen by far. You can choose to have the credit for a period of one up to seven years, or you can choose to have a business cycle loan instead. A business cycle loan will run only for four months. Hence, it will have a lower interest since it has a shorter loan period.
Balloon loan
This loan allows you to take out a loan, receive the full amount but only pay the monthly interest throughout the loan. What about the principal? Of course, you have to pay for it. For this type of loan, the principal will be paid on the last day of the loan. Businesses use this type of loan when they have stalled income from clients.
Interim loan
For this type of loan, the bank pays the contractor that’s building new facilities for you. Once the building is finished and occupied, the income from the mortgage will be used to pay off the interim loan.
A secured and unsecured loan
An unsecured loan is when a banker or lender allows you to take out a loan without collateral. Businesses with an excellent financial record would usually get approved for this type. An investment of this kind has a higher interest rate compared to a secured loan.
A secured loan is a type of liability that will ask you to pledge an asset as collateral to the equity you book in case of default. This has lower interest rates compared to an unsecured loan.
We have listed the most common types of business loans you can receive from a bank. However, there are many more types of loans out there that you can apply for. Be sure to stay informed on the loan terms and conditions before you commit.