Types of Bank Loans for Business — Is your business in need of a loan? Listed below are types of bank loans for business available from the banks and what to consider to boost your business’ credit worthiness.
Bank loans for business can provide invaluable leverage certain turning points in your enterprise. Manufacturers can take out a loan to maintain their inventory levels, or buy new equipment. Retailers can use a business loan to ease crimps in their cash flow or bet on future growth. Banks offer a wide variety of terms, from single-year short-term loans to long-term loan stretched over 20 years.
From a bank’s point of view, a loan to your business is the same thing as gambling on your company’s future; that’s why they don’t make it easy for just about anyone to waltz in and walk away with instant working capital.
On the contrary: in exchange for providing the capital that you need to met your business requirements, banks set comparatively high hurdles for borrowers.
Personal banking service that takes strong security measures is important to avoid becoming a victim of fraud.
Types of Business Loans
For almost every type of business loans, there’s different class of business loan. Loan products offered by banks fall into several distinct types with different advantages and drawbacks:
Term loans are loan with a fixed maturity date and fixed interest rates, paid off in monthly or quarterly increments over a pre-arranged payment schedule. Businesses take out term loans to finance acquisitions or expansions, or refinance existing debt.
Loans with terms of more than ten years (long-term loans) can be collateralized by the business’ assets, with payments derived from profits or cash flow of the business.
Term loans are ideal if you intend to borrow a large, fixed amount, but generally require collateral and strict approval procedures beforehand. Contracts for term loans may require the borrower to limit the amount of future financial commitment, or demand a percentage of the profit to repay the loan.
Lines of Credit
Lines of Credit are special types of loan that permits the borrower to draw as needed. The line of credit functions like an account that can be access as liquidity problems arise, making them ideal for companies that often face crises with their cash flow.
Depending on the terms, borrowers may be able to take out as much as they need, or only a certain portion at a certain time. Lines of credit may be secured by a mortgaged property, but the penalties may climb if you’re unable to pay the minimum pre-arranged balance.
Short-term loans are usually set to mature within a year. These loans are paid in full at the end of the term, instead of through monthly payments. Because short-term loans involve smaller sums of money than term loans, borrowers tend to use them for small-scale investments that deliver returns over a shorter period of time.
Equipment Financing Loan
Equipment Financing is a type of loan that collateralize the equipment to be bought by the loan. This type of loan involves significantly lower risk for the borrower, as you lose the equipment and not your business should you fail to repay the loan.