Business owners and entrepreneurs who want their business to grow will have to invest ample amounts of funds in their operations. Budget dollars will be needed for things like advertising and equipment, and much more. However, small businesses may struggle with handling and managing these necessary costs coupled with the everyday expenses of running their business. The solution? Small business loans that offer much-needed funding.
For many business owners, being indebted might seem like a frightening financial situation to be in. However, a well-invested business loan can do a lot for a business including offering a high ROI. Getting unhindered access to loans is essential, and so is picking the right loan and investment. In this article, you’ll find the importance of having access to business loans, types of loans available, and other financial options that can help grow your business.
The Importance and Benefits of a Business Loan
If you are undecided about getting funding in the form of a loan, here’s how important and beneficial a business loan can be.
Buying Appropriate Equipment
All businesses require equipment and tools to operate and function. However, some of this equipment can be expensive for a small business, whether new or used. With small business loans, a company can cover the costs of new equipment or replace old ones.
Savings on Taxes
A small business loan can attract reduced interest rates. Also, banks give tax breaks on the loans people take from them. You don’t need to pay taxes on the proportion of profit received from the loan, either.
Loans Build Business Credit
Business loans are great for new businesses or startups who need to build their business credit. A good business credit score means you can get approval for different financing options later on. Just make sure your payments come in on time to reach the solid score you need.
We would hope it does not come to this, but if your business is performing poorly you are not personally liable for the loan. This does depend on structure of your business, however.
Different Types of Business Loans
There are many different types of business loans that you can apply for. Owners need to do extensive research to find the best and suitable option for their business’ financial needs. Here are some types of business loans you can access.
SBA loans are a type of business financing that the Small Business Administration guarantees. A lender approved by the SBA provides such loans for small businesses to fund their businesses.
Equipment financing is pretty self explanatory. This is when you get funding explicitly designated for purchasing equipment for your business. In turn, these pieces of equipment become the collateral for your loan.
Invoice factoring is when a factoring company gives the borrower the funds to improve their business’s working capital and cash flow. With invoice factoring, a loan is given in exchange for unpaid customer invoices. The company providing the loan is then responsible in collecting customer invoices.
Business Term Loan
Banks and large financial institutions offer business term loans that allow borrowers to receive a huge lump sum of cash upfront. The borrowers then repay the loan with interest over a laid-down period.
Business Credit Card
Business credit cards give you enough credit funds even up to your credit limit. It works like your regular credit card as long as you need to so long as you remit stipulated minimum payments every month.
Merchant Cash Advance
Merchant cash advance allows borrowers to receive a lump sum of funds upfront. However, the financing company receives a fee, a percentage of the indebted company’s daily credit card and debit card sales.
Microloans are typically loans in the region of $50,000 or less. Mission-based lenders and non-profit organizations usually offer this kind of loan to disadvantaged businesses and startups.
With invoice financing, borrowers can use unpaid customer invoices to get much-needed funds. They do not have to sell their unpaid invoices to factoring companies like in invoice factoring, but they can use them as collateral to receive a cash advance.
Financing Options Other than Business Loans
Business owners have a lot of loan options to select from when they need funding for their company. We’ve seen several types of loans available to businesses. These other financing options are also available to help you achieve your business goals.
Angel investors are people with the financial means to offer to back small startups. In exchange, angel investors get equity ownership of the startup they back financially. They sometimes work in groups or networks when they invest and can offer advice or mentoring in addition to their capital. Companies like Alibaba, Google, and SnapChat all received help from angel investors.
Federal and state agencies offer grants to which small businesses and startups can apply and get funding. Private companies also provide grants.
Micro-lenders, who are usually individuals, offer businesses minimal loans to help them operate. These loans are generally lower than $50,000.
Here, companies can raise the capital they need when they sell securities like revenue shares and equity in the company.
These are professionally managed funds that are invested in companies with great potential. Venture capital is excellent or more accessible for businesses that have gone past the startup phase and are generating revenues. Lenders provide mentorship, expertise and help evaluate the scalability or sustainability of the company.
Another way you can receive funding for you small business is by entering into some competitions. Many times a company will host this type of competition, and any business can sign up. The contestants have to prepare a business plan or product and the winner receives prize money. Many times these are aimed at college students or young entrepreneurs.
Businesses Need Business Loans – Summary
New and upcoming business owners who are set to start their business can use small business loans. The funds your loan brings in can help you speed up your business’s startup process, buy necessary equipment or inventory, and much more.
The best part about finding a business loan is that you are really only a click away from making it a reality.
For more articles like this, visit the small business section of the site.