Understanding your available financing solutions with business loans will enable you to select the appropriate financing solution for your company. Business loans really do come in a variety of formats and structures – from business lines or credit, equipment loans, merchant cash advances, term loans, and more. In this article we will cover the basics of each to help guide you in your business financing decisions.
Business Line of Credit
Business lines of credit (LOCs) provide businesses with short-term operating expenses such as payroll or inventory purchases, providing short-term capital needs. Unlike traditional term loans that provide one upfront lump sum payment over time, LOCs allow you to borrow up to the limit and only pay interest on what money is borrowed.
Lenders consider your business’s time in operation, annual revenue and personal credit score when qualifying you for a Line of Credit loan. They also review documents related to your business that show its finances as well as your repayment plans for this debt.
Banks and other lenders generally offer both secured and unsecured lines of credit (LOCs). A secured LOC requires assets, such as real estate, equipment or inventory as collateral for you to pledge as security against potential default on repayment of the debt.
Equipment Loans
Equipment financing is one way business loans can provide capital for expansion, offering business owners another avenue to raise the necessary funds. Equipment financing may come especially in handy if your company requires equipment that supports growth.
One key advantage of small business loan financing is that it often has less stringent requirements than other forms of debt financing, making it ideal for newly formed or struggling businesses looking for ways to meet payroll, cover utilities costs and cover marketing and other expenses.
Fee-free equipment loans may also be an option, without origination fees, late payment penalties or any other ancillary costs that are often included with loans. Still, make sure to read all fine print before entering into any agreements with lenders.
If your company plans on keeping the same equipment for an extended period, leasing could be more cost-effective. But this doesn’t apply to every business – financial considerations like whether repair costs will outstrip replacement costs before its lifespan has expired should be taken into account when making this decision.
Merchant Cash Advance
Merchant cash advances (MCAs) provide business owners looking for quick capital access a hassle-free option that doesn’t require collateral and can often be approved within days.
Businesses unable to secure collateral for business lines of credit, equipment loans or term loans often turn to merchant cash advances as an alternative funding solution. Merchant cash advances also serve businesses accepting credit card payments with high volumes of customer payments transactions – ideal funding solutions for any company accepting card payments and offering customer payment services.
Merchant cash advances differ from other forms of financing in that their repayment structure involves purchasing future receivables in exchange for providing you with a lump sum amount of money, usually in the form of credit card sales (hence the name “merchant advances”). An MCA company then takes a percentage from daily credit card sales until their debt is fully repaid.
Term Loans
Business loans provide business owners with capital for expansion through term loans. Term loans offer fixed payments with lower interest rates.
Term loans can be provided by banks, credit unions or online lenders and are designed for established small businesses that possess strong financial records.
Term loans can also be an attractive solution for business owners looking to make large investments without paying out large sums in equity up front. They’re commonly used for purchasing business equipment and investing in real estate investments.
Term loans are secured with collateral or personal guarantees; in the event that payments fail, your lender can seize any assets that were used as security for your loan and use them against you as payment for its principal amount owed.
