Types of Business Loans Available

One will be surprised as to the number of business loans available in the market today. With all the rising needs for funding and other financial resources, banks, traditional and alternative lending companies, and even private lenders have diversified their loan product offerings and services to be designed and tailored-fit for every business in any industry there is. Below are some of the loan offerings a borrower may choose from.

Secured Business Loans

Secured business loans are forms of short-term business loans that would need collateral to be tied against the loan as a guarantee in the event of non-payment during the loan term. The collateral security is usually the business’s real property or that of the borrower because as it is, real property is easy to resell and equity is earned. This equity adds to the market value of the property making it very viable collateral for any business loan you may want to avail of. The real property to be used as collateral should be in good condition, easily located, and is accessible. There are lending companies that also accept business fixed assets such as machinery, equipment, and company vehicles as collateral. These fixed assets are properly evaluated to determine if it has value more than enough to tie into a business loan. With banks, the interest rates may be lower but the borrower should be able to prove that the business is in excellent financial standing and credit score. The alternative lending companies do offer this type of short-term business loan but with a higher interest rate than that of the banks because of the risks posed by granting this type of business loan to small businesses who do not have an excellent credit rating and their financials are unstable.

Unsecured Business Loans

Notably, this type of business loan has been gaining popularity among the owners of small and medium-sized enterprises due to the ease and speed of being granted one. A lot of these alternative lenders are growing in numbers and have started to specialize in granting loans without the borrower having to go through an overly complicated process. Borrowers should be able to present their bank statements and cash flow statements for the loan advisor to evaluate and decide as to the amount of business loan they can borrow.

Low-Doc or No-Doc Business Loans

Some businesses have not been able to establish good working financials and proof of income since they started their business operations. And just like any other business, they need financial help or immediate funding to be able to recoup losses or to infuse additional capital that the business might need to survive. The low-doc or no-doc business loans are backed by residential property as collateral instead of working and good financials of the business. The increased risk to the lender results in these types of business loans having higher interest rates and fees. Only non-bank specialist lenders offer this type of business loan.

Traditional Bank Term Loans

Bank term loans involve a lot of paperwork in applying for it and usually take months to know whether you have been approved or decline. Banks offer lower interest rates for this type of business loan granted mostly to businesses of favorable credit ratings and standings. The business plan and financials – tax returns, cash flow statements, profit and loss statements, audited financial statements – must be submitted for evaluation. Unfortunately, almost 75% of the country’s small business applicants for bank term loans are rejected.

Invoice Financing

All businesses have existing accounts receivables or invoices that are waiting to be paid. These outstanding invoices may be used to obtain business loans if you cannot wait for these invoices to be paid and the money is immediately needed. The business owner usually would offer and sell their business invoices to an invoice financing company for them to be converted into a business loan that can be used for the business’s immediate cash needs. 80-95% of your invoices will be paid by the financing company and charge around 2-5% interest on the total invoice amount for the business loan that you need. When the invoices get paid, the business gets back what remains of the invoice less the charges as set upon by the loan contract.

Business overdraft, line of credit, business credit cards, and equity loans are also some of the types of business loans available to the borrower or business owner in the country and each of these business loans has features that are designed to ease the financial burdens and concerns of the business. Whatever business loan you avail of, the business owner must ensure that repayments will be made for the business to be more creditworthy and trusted.