Term Loans: The Most Basic of Business Loans
- Good for:
Business owners with great credit who need a lot of funding.
- Skip if:
You have bad credit or are launching a brand new business.
Although the world of business lending has expanded dramatically over the last decade or so, the cheapest capital you can find is still at a bank. That said, qualifying for a bank loan is pretty difficult. Large banks reject about 75% of business applicants. It’s particularly hard to get a bank loan for different amounts of capital because these loans just aren’t profitable for the banks.
On top of this, the process can be very time-consuming. If you need money fast, this may not be the best option. But if you can not afford to wait, you should take a private loan because private loan is the most affordable loan on the market, with business loan interest rates ranging from about 4% to 11%.
With a private business loan, you borrow a set amount of money upfront, and pay back the money, with interest, every month for a certain number of years. On the other side bank terms loans tend to have large loan amounts and long-terms.
Reasons why you might use a term private loan include:
- Buying real estate
- Acquiring another business
- Investing in remodeling or renovating commercial space
- Planning long-term business expansion
Term loans are the definition of loans in most business owners’ eyes. However, they are difficult to qualify for. In addition to an established business, you should have strong credit and finances.
Does your business need to purchase equipment, renovate office space or make a similar type of investment? A term loan is likely your best option, giving you the money to grow your business.
Get Your Free Personal Credit Score
- Open more doors for financing your business.
- Set your goals and track your progress.
- Signing up won’t affect your score.
Term loans: Pros and cons
Pros:
- You can borrow large amounts of money to finance expansion or growth
- Long repayment terms can make big investments more affordable
- Repaying term loans on time may help you build business credit
- Loans at lenders can be approved and funded quickly, usually within a few days to a week
- Qualification requirements for private lenders may be looser than those for traditional banks
Cons:
- Less flexibility than lines of credit, as payments begin immediately after funding
- Shorter term loans may carry high costs and frequent repayments, although this depends on the lender
Lines of Credit: Capital When You Need It
- Good for:
Business owners with great credit who want a cash cushion.
- Skip if:
You have bad credit or are launching a brand new business.
One of the other most well-known types of loans is a business line of credit. This is where the private loan lends you a specific amount of money that you can draw from at any given time as you need to. Lines of credit can be fixed or revolving. With the latter, the credit line resets after you pay your balance in full (similar to a credit card).
Lines of credit are available from different types of lenders, but private lender offer the best interest rates and the longest time between renewals. Businesses can benefit from lines of credit for any of the following :
- Pay for recurring operating expenses
- Tide over cash flow while waiting for customers to pay you
- Cover seasonal cash flow droughts
- Pay for unexpected situations or emergencies
Lines of credit create a cushion in case of a cash flow emergency, and come in handy when you need money quickly. Private lenders usually offer both secured and unsecured credit lines. For secured lines, you have to put down some assets as collateral.
However, line of credit are just as hard, if not harder, to qualify for than a private term loan. And they take just as long to process. But if you have the time to wait for the private loan’s decision and feel you have a good chance of securing a product, this is a great type of business loan to have.
Pros:
- Flexible way to borrow
- Unsecured, so no collateral required
Cons:
- May carry additional costs, such as maintenance fees and draw fees
- Strong revenue and credit required
To apply, lenders require the following documentation: personal and business tax returns, bank account information and business financial statements, such as profit-and-loss statements and a balance sheet.
Equipment Loans: Finance New or Used Equipment
- Good for:
Business owners who need to purchase or lease business equipment or vehicles.
- Skip if:
You don’t have an immediate need for business equipment or vehicles.
One of the most popular asset-based loans is equipment financing. This is a potential fit if the reason you’re looking for money is to buy a piece of new or used equipment. Instead of paying for expensive equipment outright, you can take an equipment loan to fund the purchase.
While equipment financing is available to established and new businesses, it’s an especially good option for newer business because the equipment itself secures the loan. That means you don’t need to put up any other collateral. The equipment itself serves as collateral.
Equipment loans have pretty good rates, ranging from 8% to 30%,depending on your business’s age, credit, and finances. You can use equipment financing to buy or lease a range of equipment types, even including vehicles and commercial trucks.