13 Different Types Of Business Loans for Business Growth

May 27, 2022

Different Types Of Growth Business Loans

Bootstrapping for a startup can be quite tedious and not very productive. Exploring different types of business loans can help you grow your business without exhausting your personal relationships.

In this article, discover the different types of business loans you can take to bring an idea to fruition, or nurture the business you’re passionate about.

13 Different Types Of Business Loans

Leveraging debt to grow a business is something common among entrepreneurs. This is one of the reasons why companies invest in building healthy business credit scores

If you’re looking for loans to gain the financial boost your business needs, check out this list.

1. SBA Loans

The Small Business Association is a federal agency that aims to help small businesses start, grow, and thrive. Their loan programs work with the SBA providing a guarantee to lenders when businesses default.

As such, favorable interest rates are within reach once you have your business’s application reviewed and approved by the SBA.

The process may take weeks to months, with an extensive list of requirements and a personal credit score, but you can borrow up to $5 million with the SBA’s approval.

Popular loans from the SBA include 7(a) loans for working capital and acquisition, 504 for real estate and equipment purposes, and microloans of up to $50,000 for supplies, equipment, and working capital. 

2. Startup Loans

You can check with your personal or corporate bank if they offer startup loans. Startup business financing is helpful for early-stage businesses that haven’t established creditworthiness yet.

You may be able to find startup loans that don’t require businesses to have operated for a year yet, with favorable interest rates and negotiable payment terms.

This is helpful if you’ve run out of options for bootstrapping your startup, or if you’re looking for additional financing to support your business’s growth.

3. Term Loans

Terms loans are well-known options for entrepreneurs in need of additional financing. These are business loans from banks, lenders, or unions that you can repay over a fixed period of time. Rates may vary depending on your creditworthiness.

Like most business loans, you will need an established business credit score to get approval for term loans. Personal credit score and guarantee may also be asked, depending on your lender.

You may find term loans of up to $500,000, payable up to 10 years, which you can use for multiple purposes in your business.

4. Business Line of Credit

If your business has operated for more than half a year, it may be eligible to get a business line of credit.

Compared to receiving a lump sum like other loans, a business line of credit is where a bank approves an amount you can access at anytime, and pay later.

With a business line of credit, your lender may sometimes require a personal guarantee, but the utility you get from a line of credit is highly beneficial given its typical multipurpose nature.

5. Equipment Financing

Equipment financing loans are ones you can take out for huge equipment purchases, and also software, facility upgrades, and more.

Depending on your lender, you may get funds of up to $5 million within 24 hours of application. This, of course, comes with requirements of operation for longer than a year, annual revenue of $50,000, and a steady recent cash flow or a business credit score of at least 650.

Equipment financing is easy because the purchased equipment typically already acts as the collateral for the loan. When taking an equipment loan, always factor in the utility, lifespan, and returns you expect from your purchases.

6. Invoice Factoring

Invoice factoring is a type of business financing option where you sell outstanding invoices to another agency.

In terms of business credit, your customers’ creditworthiness matter more than your business’s in invoice factoring. As such, you must take some time to assess your clients’ likelihood of paying before taking an invoice factoring agreement.

You can take a recourse factoring agreement where your business can buy back unpaid invoices or a non-recourse agreement where the third party accepts liability for unpaid balances.

Invoice factoring is useful if you run a B2B company or provide services where invoices are used to collect payments. This lets you access the cash you’re entitled to without waiting for your clients to pay.

7. Invoice / AR Financing

Unlike invoice factoring, invoice financing is an agreement with your lender where your receivables serve as collateral for a cash advance.

This agreement often allows businesses to get around 80% of the outstanding invoices as a cash advance.

With invoice or accounts receivable financing, you’re still in charge of making sure payments are collected from your customers or borrowers. Take note, however, that some lenders offering AR financing may charge a weekly rate until you’re able to repay the loan.

8. Merchant Cash Advance

Merchant cash advances are provided by lenders depending on their assessment of your future revenue. Daily sales may be a basis of how much your provider will loan you.

With a merchant cash advance, you can still apply with a bad credit score, given that you have high credit card sales volumes. 

Excellent debt management may also be needed if you work with a lender who requires daily payments. Rates are also typically higher with a merchant cash advance, and frequent repayment terms can lead to cash flow problems in the future.

9. Personal Loan

If you have a good personal credit score, you may qualify for a personal loan which you can use for your business.

Although typically smaller than business loans, taking a personal loan for business use is helpful if you’re planning to combine different types of financing for your business.

Like a startup loan, a personal loan for business use is helpful for new businesses that have yet to establish creditworthiness for bigger business loan applications.

10. Business Credit Card

A business credit card is a user-friendly option for businesses to take for financing pretty much anything. As long as you have a credit score worthy of getting approved for a business credit card, you can apply for one.

Like a personal credit card, you get a card with revolving credit. You can use it for travel expenses, daily office expenses, events, and pretty much anything that helps you operate your business.

11. Microloan

Microloans are small lump sums you can take and repay in shorter terms. Typically provided by nonprofit organizations supporting underserved communities, you can also check if your bank or lender provides microloans.

You can get up to $50,000 to help your startup take off, or sustain a business you already have with a microloan. Just prepare for lenders who may require a personal guarantee or some sort of collateral for approval.

12. Commercial Mortgage

If you’re planning to acquire real estate for your business, you can take a commercial mortgage or a commercial real estate loan.

The process will require you to value the property you’re acquiring, building, or renovating to provide the amount you need. The property in question will also serve as the collateral for your loan.

You will usually encounter commercial real estate loans for up to 70% or 80% of the value you need, with varied payment terms and rates. As such, you should also be ready for the other part of the amount to start with your real estate acquisition or project.

13. Business Acquisition Loan

If you’re planning on acquiring an existing business or franchise, you can try applying for a business acquisition loan.

While other loans can also be used for this purpose, business acquisition loans can specifically offer longer terms and rates starting at 5.5%.

What you’ll need to prepare when applying for an acquisition loan are proof of your tenure as an entrepreneur, your capability to run the business you’re acquiring, and the creditworthiness of your personal and business accounts.

Valuation and financial forecasting may also be needed for your target acquisition, so be sure to prepare those as well.

different types of business loans

Outsourcing Debt Management

While banks, lenders, and financial institutions may already offer some level of consultative help, debt management is still an internal process for your business.

As such, you may need to hire an accountant or admin assistant to help you keep up with payments, and search and apply for loans and grants. They may also take on the responsibility of collecting invoices and other receivables.

This task can be outsourced to bookkeeping virtual assistants or administrative virtual assistants. While you get the internal financial management covered for your business, you’ll also be saving costs with the inexpensive nature of offshore outsourcing.

Just make sure you’re hiring from a trusted source or an agency that can help you keep your confidential information secured.

Virtudesk offers these virtual assistant services while also providing you with security options and cybersecurity insurance. If you’d like to outsource debt management and more with our virtual assistants, fill out this form and one of our Consultants will get in touch with you.

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