4 Different Types of Business Loans

Most business owners often think that banks are the only way to obtain a business loan. If they don’t qualify for a bank loan, they’re out of luck. Fortunately, this is far from the truth. Multiple financing optionsare available for small business owners looking to fund their business.

However, these loans differ from one another in terms of requirements, qualifications, rates, and payment terms. Every small business loan is specifically designed to suit different types of business needs. If you’re looking to purchase equipment, add inventory, or increase your working capital, SMB Compass offers the following four types of business loans:

1.    Asset-Based Lending

An asset-based lendingis a type of business loan secured by collateral. The terms of this loan depend on the type of collateral you can provide. Lenders usually consider the following assets for an asset-based loan:

ü  Accounts Receivable

ü  Inventory

ü  Equipment

ü  Real Estate

ü  Intellectual Property

ü  Marketable Securities

The accounts receivable and inventory weigh heavier than the other types of collateral. The rest is usually not needed for an asset-based loan but lender still considers them if your business is in need of additional capital.

2.    Invoice Factoring

Invoice factoring is technically not a loan, but rather a business transaction. This type of financing enables you to sell your unpaid invoices to lenders or factoring companies in exchange for a cash advance (around 60% to 90%). Lenders will be the one to collect payments from your clients. Once all your clients have paid, lenders will give you the remaining percentage, minus a small transaction fee. The approval rate for invoice factoring is relatively high since the invoices act as collateral for the loan. Credit rating and business history are not so important in qualifying for invoice factoring.

3.    SBA Loan

The Small Business Administration (SBA) created SBA loans for small businesses looking to secure long-term financing. The SBA guarantees up to 85% of the loan, which lowers the APR rates since lenders are confident they’ll get their money back. While the Small Business Administration created the SBA loans, they are not the ones lending you the money; SBA-approved lenders are the ones who lend you the funds. SBA loans are flexible; you can use it for any business purpose like buying equipment, expanding your business, and more.

4.    Business Line of Credit

A business line of credit is structured like a credit card. The difference is that businesses with low credit score can apply for a line of credit and actually qualify. Once approved, lenders will set a maximum credit limit which you can draw money from whenever you need it. The greatest benefit of a line of credit is that you only have to pay for the money you’ve withdrawn, plus interest.

We'd love nothing more than to see your business soar! If you want to know more about the different types of business loans, talk to our financial advisor! Our team of trusted advisors will assess whether you need to take out a loan or not. If you do need one, SMB Compass can help your business secure the funding it needs for growth and expansion. You can contact usby phone at (646) 569-9496 or email us at info@smbcompass.com.