As much as you’d love to be able to run your new business without a single line of credit, the truth is that most business owners need some quick money at one time or another. There are a lot of different types of loans out there, and your business may enjoy the benefits of one or many of these great options. If you’re looking to learn more about different types of credit available to a small business, here are some of the different loans that may be available through your lending institution.
A short-term line of credit is designed for those that need cash and fast. The interest rate is almost always higher and the maximum amount of money allowed is usually lower, but the application process is easier, and you can usually see a check within a few days. These loans are typically not offered by your bank, and instead are offered by alternative lenders, making them a good option for business owners with less than stellar credit scores. It’s a good way to get some quick capital, but should not be a long-term solution, especially with the higher interest rates.
Some small businesses will have the need to purchase expensive equipment, such as vehicles, printing equipment, computers, machinery, etc. Many lending institutions will offer loans for these types of needs, especially since now they have collateral to use, should you not pay back the loan. Since there is collateral, the interest rates tend to be a bit lower, and the credit requirements are usually a little easier to reach, since the lender is relying on the value of that shiny new machinery to build confidence in the loan.
One of the lesser-known forms of credit is based on the invoices you have outstanding as a small business owner. Basically, the value of your outstanding invoices acts as your credit score, allowing you to draw money as you need it, instead of waiting for your customers to pay on time. This is especially great when you have reliable customers who always pay, but pay late. If you’re in need of some fast capital for improvements or business expansion, talk to your lender about this type of loan, as it may be a great option for you.
The old-school method here still works. A tried and true, traditional credit system works well for business owners with a strong business model. With the usual type of credit, the rates tend to be lower, provided the borrower’s credit score is high. The maximums are also larger, and they usually come from the bank in which your business is already using. With traditionally lower interest rates and lower closing costs, these types of loans are great for those that have great credit scores, or if you’re willing and able to pay it back quickly.
This article was written by Deborah Flomberg for Small Business Pulse