The Different Types of Business Loans and How They're Used


Even if your business has enough assets to pay for all your needs, it may not always be the best idea to liquidate your assets in order to make purchases. There are several different kinds of business loans that your business may be able to take out to meet whatever your needs are at the time. This will allow you to keep your assets while taking care of your other temporary or long-term needs.

What Is the Difference Between a Business Loan and Personal Loan?

Most people know about personal loans, such as auto loans for cars or mortgages for homes. An individual or multiple individuals may take out a personal loan, and then will be personally responsible for paying it back. With a business loan, it is actually the business taking out the loan, so the business is responsible for repaying the money.

Another difference between personal and business loans is that borrowers can spend the money any way they want. It may be quicker and easier to apply for a personal loan, but you can probably get more money with a business loan and you won't be personally liable for it.

Different Types Business Loans -- Traditional

Small businesses were hit hard by the financial crisis of 2007-2008. Funding from many sources dried up, which had a particular effect on small businesses. Since then, there has been a rebound in the market, and there are many opportunities for various kinds of business loans.


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SBA Loans

Not every business will qualify for an SBA Loan, but these loans have several advantages. Part of the loan is guaranteed by the Small Business Administration, so you might not have to repay the entire loan if you default. Financing is good for up to 90% of the loan, and you can choose different terms and between fixed rates or variable rates. The downside is that the application takes a long time, because the requirements are strict, and you may need to offer some collateral.

Term Loans

Regular business term loans can be used for any of your business needs, and you will have flexibility over how much you borrow, repayment terms, and even what kind of lender you want to use. Taking out a term loan may even help to improve your business credit rating, These loans generally require a decent credit rating, though, and some lenders may require collateral.

Equipment Financing Loans

You can take out a loan or a lease in order to get the equipment you need to run your business. These loans may be easier to get because the equipment will serve as the collateral for the loan.

Commercial Real Estate Loans

Another kind of secured loan, you can take out a commercial real estate loan in order to buy property where your business can operate. Property loans usually have great rates, because the lender knows the value of the property.

Business Lines of Credit

This is a lot like having a business credit card, where you have access to cash if you need it. The great thing about a line of credit is that when you encounter a business need, you won't have to fill out an application and start the process from the beginning to get the funds you need right now. You only pay interest if you actually withdraw money.

Nontraditional Small Business Loans

If your business is new, there may not be enough credit history to apply for traditional loans. Many people choose to take out personal loans to support their businesses.
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Again, with a personal loan, you will have to pay the money back if your business can't. It will affect your income-to-debt ratio, and if you can't pay it back, it will have a negative effect on your credit score. Sometimes it's the only way to get the cash you need.

Whether you need small business cash loans, money for equipment, or loans for current bills you can't pay, you should explore all your options and consider the timeframe and your current state of credit.