The Different Types of Business Loans

Small Business Loan – The most common type of small business loan is the 7(a) program. Something that you should know about this loan is that the lender looks at what the business (not the individual) has. For example, your business has to operate for a profit in order to be eligible for this type of loan. If a business is operating at a loss but the owner has the money to repay the loan, the business is still not qualified. In order to find out if your business is considered small, you should take a look at the North American Industry Classification System.

Merchant Cash Advance Loan – If you get a merchant cash advance loan, the life span will typically range from 3 to 18 months. A unique feature about this type of loan is that they are considered “fast loans” and the borrowers will often pay this type of loan back daily. If a business decides to pay the amount back through a split withholding, the credit card processing will automatically “split” up the money. Because the credit card processing automatically gives the financier back their money, it is often considered less risky for the lender. It tends to be popular among retail stores and other types of merchants. A potential draw back about this type of business loan is that it tends to be more expensive than other options.

Start-up business loans – This loan is specifically meant for owners who are just beginning their business. In this situation, your personal credit history DOES impact your eligibility for the loan. It requires asking a lender for a certain amount of money in return for some of your profits. The big obstacle that a business faces with this type of loan is proving that they are worth the money. Because they have not been around for a significant amount of time, they have to convince a financier that their business will succeed. This can be tricky, but well worth it for the owners that are just starting out.

Professional loans – In order to qualify for professional loans, you have to be working in specific industries. Some of the occupations that make people eligible for professional loans include doctors, lawyers, and other types of high paying jobs. A doctor may use this type of loan if they need to purchase some expensive equipment in order to practice. A potential draw back about these types of loans is that they are only given out to individuals in high paying fields. These types of loans come in both secured and unsecured. The interest rate will depend on the type of loan that you get and what industry you are in, but are typically between 5 and 10%.

Equipment financing – Another loan that you can apply for in order to purchase supplies is the equipment financing loan. The major difference between an equipment financing loan and professional loans is that they are always secured and are available to all industries. Therefore, there is a lot less risk for the lender or financier. Funding usually ranges between one to three months and the interest typically ranges between 8 and 25%.

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