Whether you’re covering the initial setting-up costs, paying for products and equipment, borrowing money to navigate low sales periods, or something totally different, business loans can make a big difference to your business.
And there are actually several different types of business loan to choose between. Banks and lenders offer a range of different loan options that can help you do everything from buying new equipment to covering day-to-day cash-flow requirements.
Let’s take a look at some of the most common types of business loan, explaining what they do and why you might need them.
Working Capital Loans
Available from many banks and alternative business lenders, working capital loans are essentially short-term solutions for businesses in need of money to cover their running costs. They’re ideal for those tricky periods that many businesses face where sales are down or revenue has taken a hit. They can often save a business from closing down, but you need to be careful to find competitive rates.
Banks and business lenders also offer equipment loans. As the name implies, this type of loan is designed to provide money for the purchasing of equipment and tools related to your business. If you run a restaurant, an equipment loan can cover the cost of kitchen appliances, for example, while office workers can pay for computers and desks with equipment loans.
Lines of Credit
Similar to working capital loans in function, lines of credit are used to cover day-to-day costs and short-term cash-flow needs. With this kind of loan, you only borrow the amount you need and pay interest on the cash you use, rather than the whole amount. These loans are usually unsecured and don’t tend to need any collateral, but can come with various fees.
Merchant Cash Advance
This type of loan is given out to businesses and varies in size depending on the business’ monthly credit card transactions. In general, you can borrow around 125% of your usual monthly transaction total. They’re quite easy to obtain and can be funded in just a few days, with the loan being repaid via credit card sales.
Franchise Start-up Loans
As the name implies, franchise start-up loans are designed for new businesses that need some initial funding to start up their own franchise. These loans can cover everything from the franchising fees to equipment costs or the cost of building a new store.
Professional Practice Loans
These kinds of loans are designed for businesses provided professional services, like those in the legal, healthcare, or veterinary industries. They’re often used by those wanting to open a new practice, invest in real estate, buy new equipment, or to refinance existing debts.
For this kind of loan, a lender will advance money to a business to cover the costs of their outstanding invoices. Then, when the invoices are collected, the lender gets the money, along with an added fee. It’s a good choice for businesses with bills to pay but a lack of funds to pay them.