Different Types of Business Loans

Business loans are an essential part of nearly every business. It is reasonable that when you start your business or are looking to grow your business, extra funds are needed to make an investment in your company’s future. With so many different types of business loans out there, it can be difficult to determine what kind of loan you need for your situation. By learning about three key business loan types, you can take the first step towards being educated about your credit needs.

Most Common Types

The most popular and often-used loan is the long-term loan, also known as an installment loan. An installment loan typically deals with a higher dollar figure than similar loans. Repayment of an installment loan is made on a month to month basis over an extended period. While installment loans are often more ideal, they are also harder to obtain. They can require that you have a solid reputation with the bank or a clear and established profit history. Installment loans are useful if you are growing your business or refinancing.

Another popular type of loan is a short-term loan, also known as a balloon loan. A short-term loan is the opposite of an installment loan in some respects. They typically work with a lower dollar figure that is paid back over a shorter period. Instead of monthly payments, a short-term loan requires payment in full at the end of the loan period. The term ‘balloon loan’ comes from the substantial ‘balloon’ payment made at the end of the term. A short-term loan is most beneficial for a need that has a quick profit turnaround such as stocking the inventory for a seasonal business before you have begun to turn for the season.

A line of credit loan is yet another common loan that banks may issue. Similar to a credit card, a line of credit loan allows the borrower to withdraw funds as they are needed. Line of credit loans are typically more long-term than other loans and often renewed by the bank on an annual basis. By giving your business quick access to funds if a business emergency or an unexpected need arises, line of credit loans can be an essential tool in your business’ financial arsenal. However, a line of credit loan is meant for temporary short term use and is not intended to sustain your business the way installment and short term loans are. There are many other types of loans out there all with slightly different purposes.

Secured and Unsecured Loans

Another factor that is important to look at when considering a business loan is whether or not the loan is secured. An unsecured loan occurs when a bank chooses to lend you the money without requiring that you put any collateral forth. Unsecured loans are harder to obtain as they most often are only given to customers whom with the bank has a strong history. For these types of loans, the bank wants to know your financial past and know for certain that you are good to make the repayment. A secured loan is when the bank requires that you use an asset as collateral for your loan to proceed. These types of loans are much easier to obtain since you are putting forth something of your own as collateral to prove your commitment to paying the loan back.

Get a Quote

Business loans can be a valuable tool to help your business reach the dreams you have for it. If you are currently in need of a business loan for your company, we can help you get a quote today. Use our website to search for the best business loan available to suit your needs.