Business Loan Types

Business Loan Types

Business Loan Types

We understand that business financing, bank loans and other types of funding can be confusing to understand and that deciding what’s best for your company even more confusing. So we’ve compiled a list of the top options for financing your company, that way you’ll have all the information you need to make the best choice possible.

AR/PO Financing

Accounts Receivable Financing or Purchase Order Financing is when a business sells their purchase orders or accounts receivable for a loan. This kind of loan is the best option for when a business receives an order for their product but doesn’t have the money needed to fulfill the order.

This type of loan will help you quickly receive the money you need for your business to grow. Your business’s accounts receivable or a single purchase order will act as the collateral for a short term loan.

Business Acquisition Loans

A business acquisition loan is the best option for someone who wants to purchase, acquire or refinance a franchise or business. In order to be approved for this type of loan a lender will want to examine the value of the business based on its past performance and the experience of the owner. A lender will also want to see a business plan, a business budget and a financial forecast.

Cash Advance

Cash advance financing is the best option for a business that needs a small amount of money for a short amount of time, usually no more than a year. This type of financing permits a business to use their future earnings as collateral for the loan. To pay back the loan a small amount is withdrawn from the business’s bank account every day.

Generally speaking this type of loan is easy to qualify for because of the terms and repayment method. The approval process is simple and usually a credit check is not necessary. While this may seem like a great option for a short term loan it should be used carefully and only under right circumstances.

Commercial Real Estate

A Commercial Real Estate loan requires real estate to be put up as collateral and the size of the loan is based upon the value of the collateral. The credit score of the borrower is also important and will be taken into consideration. The real estate must be commercial and includes industrial buildings, office buildings, warehouses or retail space. Because of the wide variety of real estate that can be used as collateral the size of the loans and their interest rates can and will vary greatly.

Equipment Financing

Equipment Financing is meant for businesses that need expensive equipment to produce their products and services but can’t afford to purchase them on their own. This type of loan can be used to buy new equipment, leases equipment or to get cash against already paid off equipment. To be approved for Equipment Financing there must be collateral to put up, credit scores will be checked and the financial history and worth of the business will be evaluated.

Line of Credit

A line of credit refers to a business credit card or overdrafts for business bank accounts. They are usually a couple thousand dollars but can go as high as a hundred thousand dollars in certain situations. Credit score, credit history and debt ratios will all be reviewed in the approval process and interest rates vary depending on the borrower.

Microloans

Microloans generally come from non-profit organization that are set up to help new businesses, companies with low credit and minority run companies obtain small loans. These organizations provide government funding to businesses that are typically unable to obtain business loans from banks and more traditional lenders. Microloans and very small loans come with their own requirements and conditions set by the non-profit organizations, including collateral, business plans, financial projections and personal guarantee. These organizations not only provide loans they also offer training and assistance to new businesses that need help.

Peer to Peer Loans

Peer-to-peer loans are, simply put, when one person who is not associated with a bank or traditional financial institution loans money to another person who needs it. Peer-to-peer loans have been popularized by the Internet over the past several years as the Internet plays an integral role in the process. To apply for a peer-to-peer loan you have to sign up with an online network where investors can choose what businesses they want to invest in. Its relativity similar to a bank loan but without the rules and regulations that govern banks, because of this it’s a great option for businesses that need cash fast or those who don’t meet the qualifications for a bank loan.

Franchise Loans

Franchise loans are given to individuals for the specific purpose of purchasing a franchise. These types of loans are similar to typical business loans but have slightly less risk associated with them as a franchise usually comes with a solid customer base unlike a new business. This shouldn’t however stop you from performing the proper research beforehand as opening a franchise does come with some risk just like any business venture. You should pay particular attention to the needs and wants of potential customers in the location you plan to open your franchise, this should give you some idea about whether you’ll be successful or not.

SBA Loans

The Small Business Administration (SBA) helps to provide small businesses with the money they need to run a successful business. These small companies are typically unable to obtain funding from other sources because of lack of experience. SBA loans are ensured by the government, this reduces the risk of the lender just in case a borrower defaults on the loan. A borrower should have a detailed business plan, financial projections and good credit before they apply for a SBA loan.

SBA 7a Loan

The Small Business Administration 7a loan program helps businesses with very specific needs and is only available for certain types of businesses that meet the requirements. This loan can be used to start a new business, purchase an already existing business or expand a business. The objective of the Small Business Administration 7a loan program is to inspire economic growth, through the financial support of businesses in underserviced communities.

Here are some of the loans available through the Small Business Administration 7a loan program.

  • Special Purpose Loans Program: The loans in this program are meant for businesses that are affected by NAFTA .These are the loans available in this program: CAPLines, CAIP, Pollution Control and Employee Trusts.
  • Express & Pilot Programs: These loan programs help borrowers in distressed communities, veterans and military staff. The application process is quicker, shorter and approval can take less than 36 hours.
  • Export Loan Programs: This loan is meant to provide capital to small business to help them expand, grow and allow for more exporting in hopes of creating more jobs.
  • Rural Business Loans: This loan is given to small rural businesses that need help with growth. The loan application process is made quicker and simpler so that the loans can be awarded as soon as possible therefore allowing the business to benefit right away. 

SBA ARC Loan

Small Business Administration ARC loans are a part of the 2009 American Recovery and Reinvestment Act and are designed to help out businesses that have been hit by financial hardship. The goal is help them stay open and sustain jobs. To qualify for an ARC loan a business must be having difficulty making payments on a business loan because of present financial issues. The business must also be able to prove that it has been profitable in the past and can be again in the future. If your business is currently going through financial issues it’s worth your time to do some research and look into applying for an ARC loan, it could end up being the help you need to save your company.

SBA 504 Loans

Small Business Administration 504 loans help small businesses that need long term and fixed rate funding to expand or modernize. A 504 loan should be used to obtain a major fixed asset such as:

  • Real estate or property
  • Remodeling, renovations or upgrades of current facilities or property
  • Equipment and machinery

The 504 loan is not a general purpose loan for businesses looking to do some improvements; therefore it’s important that you fall within the loan guidelines before you decide to apply.

Equity Funding

Equity funding is not the same a obtaining other types of business funding like bank loans or lines of credit. Equity investors invest in your company and therefore become part owners. You don’t have to make monthly payments to equity investors; they get paid based on an agreed upon percentage, when your company goes public or is sold.

There are endless options for whatever type of financing your company needs, from lines of credit to equity funding you should definitely be able to find a great choice. All the options can seem overwhelming but as long as you do your research and take your time to make an informed decision your company will benefit and grow into the success you’ve worked hard for. 

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