When it comes to loans, many people think that they are only for individuals, but when you have a company you can also take out a loan to help your business. You can use the loan not only to help, but also to get your business off the ground.
A business loan can be used to catch up on your bills, or even to expand your business – do you need more space? You can take out a loan to improve it. But there are different types of loans to apply for, and that’s what we’re going to tell you about today, the loan options you can apply for.
Loan options for your business
Bank loans
Bank loans are the most common source of funding for small and medium-sized businesses. One of the biggest advantages of a bank loan is that, unlike venture capital, it allows you to inject money into your business without giving up ownership control.
Other benefits of bank loans include:
- Better interest rates compared to other types of lenders.
- Deductible interest payments.
- A variety of service and repayment options that make it easy to find the most economical solution.
However, there are some negative aspects to consider. Small business loans can be difficult to obtain, especially if you don’t have a proper business plan or an established business credit history and proven profitability.
The application process can also be lengthy, taking anywhere from weeks to months, and you may not be approved for the full amount you need if your business isn’t deemed qualified.
It is important to ensure that your company has accurate and up-to-date financial statements before applying for a loan, as this will demonstrate to bank lenders that you have the capacity to make monthly payments.
Alternative financing
If your company doesn’t qualify for a bank loan, you could consider alternative financing. Although the fees and interest rates tend to be higher, the repayment terms are generally short and often include early payment discounts.
Merchant cash advances, for example, are similar to loans in that you receive and pay back a fixed amount of money. Unlike a loan, however, you must commit to paying a fixed percentage of your daily debit and credit card revenues until the advance (plus a considerable fee) is repaid in full.
Merchant cash advances can be a good option for:
- Restaurant owners (who typically struggle to secure traditional loans);
- Businesses with cash flow problems arising from long or unpredictable slow periods;
- Applicants with poor personal credit.
Although this type of financing can be approved relatively quickly (within a few hours or days), you will need to show adequate cash flow through your merchant account.
Equipment financing
If you need to raise capital for your business and invest in the right machinery to remain competitive, equipment financing could be the ideal option for you.
This type of loan allows you to
- Acquire the specific equipment you need for your business, be it a transportation vehicle or equipment for a restaurant, for example.
- Avoid disbursing a large sum of money all at once.
- It frees up capital that can be invested in other areas of your business.
With long-term fixed payments that include interest and principal, equipment financing spreads the cost of expensive assets over their useful life, making the equipment you need more affordable.
Government funding
There are two types of government funding for which your small business may qualify:
- Business grants and tax exemption programs: These government grants are available to a wide range of businesses and usually have a specific purpose. They can support specific business areas, such as recruitment tools for startups, women-owned businesses or companies seeking technology-driven innovation. A big advantage of this type of financing is that it doesn’t have to be repaid, doesn’t require you to share equity and can endorse your business experience while helping to secure future funding.
- Financing programs: Like SBA loans in the US, Canada’s Small Business Financing Program makes it easier for companies to borrow from financial institutions by sharing the risk of the loan with the lender. If your company’s annual gross revenue is up to $10 million, you can apply for this government funding to buy or improve commercial land, buildings, equipment or carry out renovations on leases.
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