Wednesday, April 9, 2014

4 Types of Loans Every Business Owner Should Understand

Applying for a loan can be a daunting process, especially if you do not fully understand your options. To help simplify the process, The Huffington Post recently put together a list of the four types of loans every business owner should understand. The list includes:

  1. Long Term Loans: Long term loans are the most common and are used for business expansion. They are typically repaid on a monthly basis and are for larger amounts that short term loans. Additionally, long term loans generally have lower interest rates that short term loans.
  2. Short Term Loans: Short term loans are a better fit for companies that need to build up their inventory, raise cash for accounts payable, or complete small projects. These loans are usually for an amount under $100,000 and are repaid in full at the end of the term.  
  3. Lines of Credit: A line of credit is useful when a company frequently experiences short falls in income. The post warns that interest rates on a line of credit can be high, so a line of credit would not be useful for a company wishing to expand or improve an area of their business. Most banks will require the similar information for line of credit approval: past two years individual and corporate tax returns, a completed personal financial statement, good credit, etc.
  4. Alternative Financing: Alternative financing can be anything from crowd-funding resources to cash advances. 

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