When it comes to business loans, it’s easy to know when you need financing, but understanding which type of business loan should you go for can be a real challenge. With business loans there is no ‘one-size-fits-all’ solution because eligibility criteria, interest rates and terms differ with each type of loan.
Here are the different types of business loans available if you are looking to finance your business
Term loans are a way of business financing where you get a lump sum amount that you can then repay with interest, over a period of time.
- You get cash upfront which you can invest in your business
- Higher borrowing amounts
- If you go through online lenders, the funding is fast as compared to traditional banks
- Term loans may require collateral or personal guarantee in case you default
- The costs of term loans may vary. Online lenders usually carry higher costs than traditional banks
Term loans are good for individuals who are looking to expand their business. It is a great loan if you are someone who has a good credit and a successful business and wouldn’t want to wait for too long for funding.
Small Business Administration Loans are offered by lenders and banks. On SBA loans the repayment period would depend on how you decide to use the money.
- High borrowing amounts
- You get some of the lowest rates on the market
- Longer repayment terms
- Very rigorous and long application process
- Hard to qualify for SBA loans
This type of loan again, is good for the ones who wish to expand their business or even to refinance existing debts.
Business Lines of Credit
With this type of business loan, you can get funds up to your credit limit. So, you pay interest on only the money you have drawn.
- A very flexible way of borrowing
- No collateral on this type of loan
- This loan may come with additional fees and costs
- For this loan, you require strong credit and revenue
This loan is great for seasonal businesses or unexpected expenses.
As the name suggests, this loan would help you in buying equipment that is needed for your business. The term of the loan would depend on the life span of the equipment. The equipment would ideally serve as the collateral for the loan. The rates would depend on the strength of your business and the value of the equipment as well.
- With this type of loan, you own the equipment and can also build equity
- If you have good business finances and a strong credit, you can get competitive rates
- You may have to arrange for down payment
- The equipment you purchase could become outdated, this could be much quicker than the length of your financing
Invoice factoring works in cases when your business has any unpaid customer invoices that are paid in 60 days. So, if you cannot wait for too long to get paid and need the money soon, you could get the cash for your unpaid invoices through invoice factoring. The factoring company would be responsible for collecting the amount that is due from the customer.
- Fast cash
- Easier approval
- Costly than other options
- Lose control over the collection of your invoices
Merchant Cash Advances
With this type of business loan, you get a lump sum amount up front that you could then use for your business. With this loan, you could make payments on a merchant cash advance.
- Unsecured financing
- Fast cash
- Due to frequent payments, this could cause cash flow problems
- Highest borrowing costs
You could also go in for a personal loan for your business at Finserv MARKETS. This is a great option for startups since banks wouldn’t really lend to businesses with no solid history of running a business. The approval of a personal loan would depend on your credit score, but you would also need good credit for you to qualify for a personal loan. Finserv MARKETS offer personal loan with various benefits such as loan amount up to 25 lakh, zero collateral, flexible payment tenures, value added services and lot more.
- Fast funds
- New businesses or startups can qualify for this loan
- Small borrowing amounts
- High borrowing costs
- If you fail to repay it can hurt your credit
Finserv Market offers Bajaj Finserv Business Loan, you can apply online from the comfort of your home and enjoy a host of benefits of business loan that include flexible repayment tenures, instant approval and a host of value-added services.
“Finserv MARKETS, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!”