Today will be discussing some of the basic types of business loans. These types fall into three basic categories. The first category of these requires very little in the way of qualifications but is also relatively expensive in terms of interest. The second type is the traditional loan which would be for a long period of time and are primarily sourced by large financial institutions. Finally the last types are business lines of credit which can be financed either by large institutions or small alternative institutions.
Which you can get fall into a couple of subcategories. Business cash advances are the fastest way to get money for your company and also have some of the highest interest rates in the industry. Typically you will only need to demonstrate that you have positive revenue for the last six months in order to be approved. Repayment will be required usually within 90 days and interest rates can be in the high double digits. As such you should consider these to be for emergencies. Another former fast loan is the merchant account loan which is repaid a small amount at a time through your company’s credit card transactions. They are also very expensive but have rates which typically are less than those of cash advances.
Traditional loans from banks have the lowest interest rate but also have the greatest barriers to entry. You will typically need to have a good business credit score and you also need to demonstrate that you have a good history of solid revenue over the past several years. Also the amount of money which you are able to borrow in this way will be governed primarily by your company’s revenue to expense ratio. They want there to be a healthy margin between all of your expenses including your new loan and your typical revenue in order to account for fluctuations in the economy and other factors which could affect the profitability of your company.
Finally we are onto the topic of lines of credit. Lines of credit work much more like a credit card then like a traditional loan in that will not be disbursed funds right away and you will be able to borrow against this credit over and over again assuming that you have made your payments on time.
This concludes our list of different types of business loans. I hope that it is giving you a clear understanding of these categories so when you begin your search online for funding you will understand what is being offered and why.