The 5 Most Common Types of Business Loans

There are lots of different types of loans. So which one is best for you?

Not every loan type is right for your business.

Choosing the right type of loan comes down to a lot of different factors, like what industry you’re in, what you need the funding for, etc.

But in this post, I wanted to break down a few of the most common types of business loans to help you get an idea of which one might be best for you.

Business line of credit

When flexibility is a priority, consider a business line of credit.

You can get anywhere from $1,000-$500,000, and the money is typically available in a week or two.

The rates vary from 8-24%, and the financing usually comes with a 1-2 year maturity.

A business line of credit is revolving, so rather than receiving a lump sum, you can access the money as many times as required.

There’s no pressure to dip into the money, but it’s always there and you’ll only pay interest on the exact amount of money you use.

SBA loan

Think of the Small Business Administration (SBA) as your personal government friend.

The main purpose of this federal agency is helping small businesses find the funding and resources they need.

In particular, the SBA assists small businesses that are disadvantaged and might not be able to get help otherwise.

With an SBA loan, you can expect amounts from $50,000 all the way up to $5,000,000.

Terms also a cover a broad range, typically from 10-25 years. One downside to SBA loans is they’re famous for being slow and paperwork-intensive.

Merchant cash advance

With a merchant cash advance, you borrow against your future earnings to secure the financing you need.

Once you’ve been approved and the funds are advanced to your account, you’ll begin repaying the loan by having an agreed upon percentage of your daily credit card deposits withheld for the lender.

Your advance can be used for myriad purposes, so this type of financing has earned a reputation among entrepreneurs for being very flexible.

Merchant cash advances are known for speedy delivery. You can apply for anywhere from $5,000 to $200,000, and time to funds can be as short as 24 hours.

This type of convenience comes at a premium rate though, and you can expect the interest rates to start around 18%.

Qualifying for a merchant cash advance is surprisingly simple because the nature and terms of the loan make the risk lower for a lender.

So you usually don’t need to submit piles of paperwork in the application process.

In fact, you might not even have your credit pulled.

A lender will usually just want to check out your past 4-6 months of bank statements or receivables.

Equipment financing

With equipment financing, you usually don’t need to worry about a down payment or collateral because the equipment you’re buying will serve as the collateral, allowing you to move forward with a purchase without draining your liquid cash or putting your personal assets in jeopardy.

The loan amount your lender approves will depend on the type of equipment you plan to purchase.

If the equipment is in excellent condition and has a strong lifetime value, you’ll obviously be approved for more than if it’s currently rusting in a salvage yard somewhere.

After submitting your application, you may see funds in as little as 24 hours.

Another strong point is the interest rate, which can start as low as 7.5%.

Accounts receivable financing

If you’re like most businesses, you frequently deal with unpaid invoices.

Accounts receivable financing (sometimes referred to as factoring) is tailor-made for the times you need money but have money held up by unpaid invoices.

With this type of financing, you’ll receive the money you need by selling your purchase orders or receivables.

The amounts vary, but you can often get up to 80% of your receivables.

The money arrives in as little as 3 days, and the loan term can last up to a year. As for the factor rate, it’s as low as 5%.

Conclusion

These are just a few of the main types of business loans that are commonly used.

Again, choosing which loan type is best for you comes down to a lot of different factors, but hopefully this brought some clarity.

Get qualified for business funding today by visiting our funding platform ROK Financial here.