Funding

Funding options: Different loans that entrepreneurs can avail for their business

December 5, 2018December 9, 2018 Geekopedia 0 Comment Amount, Business, Cash Flow, credit card, Customers, Finance, Invoice, Line of credit, Loan, Money, Mortgage, Payroll, Rent

Many people are interested in starting up a business to establish an ordinary income or making progress to their business to establish better relationships with their clients. If you are one of which, consider asking yourself on how you can finance your business because, without money, you cannot build a business on your own.

Most of the business owners look for debts to do business. Now, if you are looking for debt financing for your business, there are many sources you can count on which includes commercial lenders, banks, and even your credit cards.

To help you in understanding the different loan you could avail, here the following structure loan of lenders which are available, with common variations. But take note of the possible different qualification requirements, rates, and terms.

1. The line of credit loans

A line of credit (LOC) is a loan that is an arrangement between a financial institution which is usually a bank and a customer. The financial institution establishes the maximum loan amount that the customer can borrow. Furthermore, the borrower can access funds from the line of credit at any time as long as the borrower does not exceed the maximum amount of credit limit set in the agreement. Thus, the borrower should meet the requirement of making timely minimum payments in the bank.

The LOC is the most useful type of loan for small business owners. More likely, it is intended for purchases of inventory and payment of operating costs for working capital and business cycle needs. Moreover, the line of credit loan is a short-term loan which is written for one year and may be renewed almost automatically for an annual fee. Aside from that, it carries the lowest interest rate a bank offers since they have seen as reasonably low risk.

This loan is good for business owners with excellent credit who want a cash cushion.

2. Installment loans

The installment loan is repaid over time with a set number of scheduled payments. It is generally at least two payments made towards the loan. The term of an installment loan is paid back with equal monthly payments covering both principal and interest. Once you sign the contract, you as the borrower will receive the full amount, and then the interest is calculated from that date to the final day of the loan. Once you pay the installment loan before its last date or due date, there will be no penalty; thus, chances are, an appropriate adjustment of interest may happen.

The term of an installment loan will always be associated with its use and purpose. A business cycle loan may be contracted as a four-month installment loan. It may be written from one to seven years. However, real estate and renovation loans may be contracted for up to 21 years or as long as 30 years just for instance a mortgage loan specifically the Annapolis Mortgage Group that offers loans also.

This type of loan is considered safe and affordable alternatives to payday and title loan and open-ended credit such as credit cards.

3. Invoice Financing Loan

This type of loan is a way for business owners to borrow money against the amounts due from customers. This is an excellent option if you have cash flow problems because you bill several customers; thus, these customers will all pay at different times. So with the invoice financing loan, you can use the advance to cover payroll, rent, and other operating expenses.

It only means that invoice financing loan helps your business improve cash flow, pay suppliers and employees, and reinvest in operations and growth earlier than the company could. It solves problems associated with customers taking a long time to settle.

With invoice financing loan, aside from covering your business expenses around 85%, a lender will charge weekly fee of for instance 1% for your waiting span of the customer to pay, once your customer funds, the lender will return the remaining 15%, minus fees of 1% for the weekly cost and 3% for the processing fee.

4. Business Credit Cards

A business credit card is intended for business purposes alone rather than an individual’s personal use. This type of loan is available to any business size. Generally, business credit cards are often easier to apply rather than non-revolving business loans because the process is usually automated with an immediate credit decision. Aside from that, the business credit cards have many added benefits which may vary to the offered benefits to every individual customer which in result to interest rates. In this, it has slightly higher rates than any other traditional loans.

Business credit cards give you an affordable way to borrow money when you needed to pay the expenses quickly. You could enjoy its benefits while lending money, for instance, the frequent business credit card offers are rewards points or cash back on purchases, introductory 0% interest rates, and protection or insurance on other things like travel purchases and car rentals. However, the initial interest rate will reset to a higher standard based after its consumption.

This type of funding option is right for business owners who need a fast and convenient way to make purchases while earning rewards at the same time.

Takeaway

There are many types of business loans offered for entrepreneurs like you who have great endeavor in your business entity. The right one for you may be found in the given common type of loans which many business owners have dealt. Upon loaning, consider your credit, your possible business finances, the length of time in your business operation or if you are starting up, the duration of your business establishment, and the reason of your loan.

Once you have narrowed down the consideration you need to count, your decision towards picking the perfect loan for your business is just and reasonable. There is no backing off once you have committed your business to a credit that is why to think more than twice is necessary because that will bring you one step closer to getting a successful business in the future.

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