A major key to being financially successful is being aware of when loans will provide a good solution for your circumstances. Below are some of the different types and benefits of business loans:
• Line-of-credit Loan
For small-business owners, the line-of-credit loan is the most useful type of loan. It is meant to purchase inventory and pay operating costs for business cycle needs and working capital. Among other benefits, it safeguards the company against stalled cash flow and financial emergencies.
• Unsecured Loan
An unsecured loan is provided by the lender when a business is considered to be low risk. It is highly unlikely that a new business will qualify for an unsecured loan. This is because getting this loan typically requires a track record of success and profitability.
• Secured Loan
This loan requires the owner to have some type of collateral; however, it typically has a lower interest rate in comparison to an unsecured loan. This loan can be used to purchase equipment or cover other business-related costs.
• Instalment Loan
An instalment loan term is always linked to its use. For example, a loan in this category may be written as a three-month loan from October 1 until December 31. It would have a low interest rate as the risk to the creditor is less than one year.
• Letter of Credit
This document is typically used in international trade and enables business owners to guarantee payment to suppliers around the world. The document substitutes the credit of the bank for the credit of the entrepreneur, up to a specified amount of money and a specific period of time.
• Interim Loans
This type of loan is used to periodically pay contractors building new facilities, when the interim loan will be paid off with the mortgage on the structure.
These are just some of the loans you can access to cover business-related costs. The different types of available business loans have diverse qualification rates, terms and requirements. Each is intended for a distinct business need. For example, they can cover the cost of buying real estate, equipment or inventory.