As your business grows, it will need more money to fund it. Although it would be ideal if that money came from its profits, sometimes that just isn’t possible. It could be due to problems with cash flow, or because the money needed to expand is much more than you currently make, and it’s the expansion itself that will lead to a big rise in your profits. The good news is that getting a business loan is usually possible, although it will depend on your financial situation, and if you are using it to expand the business, the increase in profits should be more than enough to pay it back, including the interest. So what different types of loans can you get for your business?
Line Of Credit
A line of credit loan can be extremely useful for a small business. It is ashort-term loan (which is often a good thing and will be cheaper than anything that runs on indefinitely, or for many years) that simply adds money to the business’s bank account. These can be ideal for when there is a shortfall in your cash flow and those who owe you are slow with their payments. Just because another company isn’t paying on time, that shouldn’t affect your ability to pay your suppliers on time – and that’s why this kind of line of credit loan can be helpful. Your credit and reputation won’t suffer as a result. Remember, these loans are not intended to be used to buy equipment or real estate; they are to use for operating costs. The line of credit loans often has some of the lowest interest rates too, since they are short-term and seen as low risk by the banks.
Installment loans are the kind of loan you probably think of when you consider your borrowing options. You apply to a bank or other lender for a specific amount of money, and then you pay it back on a monthly basis. The repayment amount will include the original loan plus interest. It will depend on how much risk the lender sees in your situation and business as to what that interest rate is, but if you have a good credit rating, you can get some excellent deals. Even if you have poor credit, you may still be able to obtain a loan, and as long as you know you can afford the repayments, it can be a good solution. What works well with installment loans is that they are set up for a specified amount of time, so you’ll have an end date to work towards. Be aware, though, that there can be penalties to pay if you repay the loan early.
If you are unable to obtain a business loan for your company due to poor credit, or you need the money quickly and the business loan would take too long, you might consider a personal loan. Bonsai Finance same day loans will allow you to get the money that you need straight away, and you can then put this into your business. It’s important to work out a repayment schedule, however, and if possible speak to an attorney or accountant about how to make it concrete. Otherwise, you might find that you’re personally having to pay your loan back but not receiving any payment from the business. It can then put both sides into difficulties. As long as everything is written down and adhered to, getting a personal loan can be a good way to help your business out, especially if you have excellent credit and get a good interest rate.
A balloon loan is similar to an installment loan, except that rather than continuing to pay a monthly amount until the balance of the loan is zero, you will pay a monthly amount until a certain date, at which point the entire rest of the balance will be due. It is known as a balloon payment, and it can be a great loan to get if you know that your business will be receiving a large lump sum in either payment or investment which will enable you to pay the balloon off entirely. This way your loan is going to be a lot shorter than a standard installment loan would be so that you will save potentially many hundreds or even thousands of dollars in interest. If the promised payment fails to come in on time, there may be the opportunity to renegotiate the loan to give you more time, or to transfer it to a standard installment loan.
Secured Or Unsecured
No matter which kind of loan you feel is best for you and your business, they will be either secured or unsecured loans. An unsecured loan will be offered if your lender is sure that your business is sound and will be able to pay the loan when required. It means you don’t have to put anything down as collateral should you default. If you can get an unsecured loan, you will be seen as low risk. A secured loan is for those who are seen as a higher risk. When you take out a secured loan, you will need to put something down as collateral which will be used to pay the loan should you default on it. It is usually a property but could be equipment or vehicles. Although you may prefer the ‘safety’ of an unsecured loan, the advantage of a secured loan is that the interest rate tends to be lower, so if you know you can pay with no problems, thus making your security safe, a secured loan might work best when it comes to saving money.
Although not labeled as a loan, an investment from a third party is technically one. The investor will give you money in return for a certain percentage of the company. Then, when the company is making a profit, they will have their money paid back to them, plus the percentage that they ‘bought’ with their investment in the first place. It can be expensive, especially if the investor will only make a deal for a larger slice of your company, but since you don’t have to pay anything out until you make a profit, it does give you a little more breathing space than other traditional loans.