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Types of Business Loans and Which to Consider

The success of any small business depends on its financial muscle. Having enough capital will often ensure that the company’s operations are seamless. In addition, you are confident of better revenue generation and lead conversion. Unfortunately, there are times when getting enough money will be a problem. In such cases, you could consider business loans, which are of different types. Here is a breakdown of the types you could choose.

Types of Business Loans

According to Accord Financial, there are five main types of business loans: revolving credit facilities, secured, unsecured, business cash advances, and structured debt. Each option offers distinct features, meaning that every option suits a specific business. The following are a few details about each of them.

Secured Business Loan

A secured business loan is a credit facility attached to a specific asset from your company. This asset acts as collateral, meaning that you’ll lose it in case of a default. Often, the security could be moving or immovable property, including vehicles and buildings.

Secured business loans attract a relatively friendlier interest rate. You could attribute this to the surety in place. In addition, you are confident of a more flexible repayment plan, often spanning a relatively long period.

Unsecured Business Loan

An unsecured business loan is a credit facility extended to a company without attaching collateral. It comes in two forms: a business line of credit and a business credit card. A business line of credit provides a business with unmatched flexibility, allowing the borrower to pay interest only on the amount borrowed.

On the other hand, a business credit card operates like a personal credit card. The difference is that a business can access a relatively larger amount within a specific period. This card will also be used for business only.

Business Cash Advances

A cash advance is a little different from a traditional loan. Instead, this credit facility gives the lender future sales but at a discounted price. The repayment is often made daily until the actual amount is realized. However, this credit facility is not the best for startups and small businesses, thanks to the high interest.

Structured Debt

A structured debt assures lenders an opportunity to invest in the business. Its design could allow you to merge with other profitable ventures, multiple finance options, and better capital injection. You’ll choose from four financing options: management buy-out, management buy-in, acquisition finance, and leveraged buy-out and buy-in. However, this debt is not transferable.

When Do You Need a Business Loan

Various reasons go into getting a business loan. These reasons will vary with your needs and even preferences. Some of the most common reasons for financing are equipment acquisition, improved cash flow, inventory, and improving the terms of a larger loan. All in all, each of these reasons helps ensure that the business grows and can support itself for a longer period.

In conclusion, choosing the right type of business loan will protect you from unwanted losses. It will also ensure that your cash flow improves in the long run. As such, choose the best option from those mentioned above.