If you run a business, there will likely come a time when you need additional funds to get your business to where you want it to be, whether by purchasing other premises or improving your product or service. A range of loans can be suitable for all types of businesses, like small business loans online, short-term loans and industry-specific loans. Read on to learn more about which loan options would suit your business and what you should think about before applying.
What is a business loan?
A business loan can finance growth or changes within your company. Lenders, like banks and other organizations, offer businesses loans varying in amounts that must be paid back over a certain time frame. There is a range of business loans that a company could choose from to suit their needs and repayment abilities. Generally, lenders don’t mind how you spend the money – you could use it to buy premises, train and hire new staff, or diversify your product and service. Sometimes, businesses use loans to help them free up their cash flow so their finances are not stretched as far. You will have to consider some factors before applying, but we will look at these in more detail below.
Types of business loans
Suppose you’re thinking about applying for a business loan. In that case, knowing which is the best for your company is always advantageous – different loans can be suited to other businesses, and it is not as simple as one loan fits all! Here are a few options that may be available to you if you seek financial help in the form of a loan.
Small business loans
These loans are made for small businesses that need help with their finances. There are small business loans available from your bank – depending on how long you’ve been a customer, they may be able to offer you a loan with great terms, or you could choose an alternate lender so you can research various loans online and choose the best option for you. Although there is no limit to what you can use your loan for, the most common uses are to finance business equipment that you may not be able to afford to pay for without a lump sum of savings, purchase premises, or invest in renovations to improve your company. They are accessible to a range of businesses and can help with growth. Your terms may vary depending on your business’s current circumstances, so they may not be suitable for every small business.
Short-term business loans
These loans can benefit you by boosting your cash flow when needed; invoice financing and lines of credit can help your money stay on track. As the name suggests, these loans are paid off in the short term. Several short-term loans may help you with your business finances, like a business line of credit, invoice financing, and payday loans, which should only be an option in an emergency. The aid of a short-term loan is that they are distributed quickly, so if you need cash sooner rather than later, you can take advantage of one of these loans. Businesses of all types can take out one of these loans, as they have a higher approval rate.
If your company struggles to cover costs or has been faced with an emergency expenditure, one of these loans could be an enormous help. However, these loans should not be taken out by businesses that don’t think they can afford regular payments and high interest rates, as they could fall into obligation easily if they cannot manage the costs.
Industry-specific loans
As well as short-term and small business loans that businesses can choose from – if they decide that the terms suit them – there are also loans specific to industries that may be helpful for certain companies.
For example, a restaurant owner could choose a loan for restaurant financing to help them with a range of issues, like improving their working capital and inventory financing adapted to suit their specific needs. Other industries, like farming, could take advantage of equipment loans that help to buy machinery that farmers need to work and make a profit without putting a strain on their cash flow or requiring a lump sum to pay for it. Other industry loans, like loans for salons and retail businesses, may benefit you.
Factors to consider before you apply
So, you know what type of loan you would like to choose, and you’ve decided which lender suits you best, here are a few considerations to think about before applying:
- Credit score: Your credit score shows lenders how trustworthy you are when it comes to paying back a loan, so before you apply, you should ensure your credit score and report are up to scratch to give you the best chance of being approved.
- Plan for funds: You should think about what you need the funds for and create a plan to know what to do with the money when it enters your account – this is helpful so that you don’t spend it where you shouldn’t – or waste it!
- The amount you need: Think about how much you need. Try not to take out a loan that is too much, as you’ll have more debt and high repayment costs. This can also help you choose the perfect loan, depending on how much you need.