#Types of loans #Types #of #loans

Types of loans

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Types of Small Business Loans

Why Do You Need a Loan?

Types of Small Business Loans

Term Loans

This is a loan set to terms, meaning there is a set interest rate, down payment or collateral, monthly payments, and a term of months or years that consistent payments will be made through.

Businesses in the startup phase must provide a lot of documentation, business planning, and personal collateral for a bank to be willing to risk lending the funds to your new business. Operations in the growth and expansion stage typically see better results because they have consistent profits or rising sales to prove they have a good chance of repaying the loan.

Lines of Credit

Accounts receivable factoring is an interesting type of lending where the factoring company buys your accounts receivable amounts and proceeds to collect on them in the future under the normal terms. You could sell your accounts receivable for 97% of their value, and the factoring company earns the 3% as they are paid by the customers that owe you money.

Factoring is a different way of going about getting access to capital, but it can be quite costly with your AR being worth anywhere from 95% to 98% of its value in a month.

Small Business Administration Loans

The Small Business Administration was created to help foster the creation and growth of small businesses in the United States. If you are unable to qualify for loans through traditional banking means, the SBA may be able to help you through one of their three loan programs.

The three programs are the 7(a) loan program, the Microloan program, and the CDC/504 loan program. A 7(a) loan program has very specific requirements and is designed to help only in certain instances such as a business in a rural area or to streamline the loan process for active duty or veteran service members. The Microloan program provides very small loans to help buy equipment or inventory; funds cannot be used to purchase real estate.

The 504 program is a much longer term loan designed to help businesses acquire significant assets for growth or expansion.

The SBA does not lend directly to small businesses. Instead, the government provides its bank lending partners a guarantee that the loan will be paid even if the business fails. This is to help foster some entrepreneurial risk to get businesses started up in communities across the country.

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SOURCE: http://www.businessdictionary.com/article/513/types-of-small-business-loans/

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