Getting a business loan can be a really great way of accessing finances and aiding cashflow when things are a little tight. And a cursory search for a business loan or finance for business will dredge up hundreds of different results. With so many options available, it might seem like a good idea to plunge straight in – however, you’ll want to make sure that you get your application right from the start.
Financing your business can seem quite frightening, but it is a very normal and well-trodden path for any business owner to take. Unless you’re Apple or Microsoft, you’ll want to have some sort of access to capital and finance for your business. In fact, even some larger corporations access funds from time to time, if they have to meet short-term obligations.
Finance for small businesses can be incredibly important, and finding the right funding model is essential. Sometimes if you don’t read the small print, you could end up in a repayment term that affects your growth for years to come, or even lose part of your business.
Types of Business Loan
There are all sorts of different loans that you can apply for, and knowing which one will suit your needs the best is really important. Let’s take a look at some of the more popular and important business finance loans that you’ll likely come across.
If you’ve applied for a mortgage, you’ll know this process already! Debt financing comes from a bank or another lending institution. When you decide you need a loan, you head down to the bank or other lender, and complete an application. Your business’ credit history will be checked, so make sure all your business records are complete and properly organized.
This type of loan comes from investors – or venture capitalists. This can be a great route to take, as you don’t have to pay back the seed money, as the investor effectively is a co-owner of the business. The downside to this is that you have to run every decision past your new co-owner – plus if they think it’s a risky business, they might ask for a larger stake.
If your business is already showing growth, this could be the most beneficial option for you and the lender. It effectively combines the best parts of debt and equity financing, with an equity option being available if the debt financing interest doesn’t pay off. However, it could result in higher interest rates and the potential for a larger percentage of the company being claimed.
Off-balance Sheet Financing
This option isn’t necessarily a loan. As a business, what you’re able to do with this option is take your current debt off of your business’ credit report. It’s often used by small businesses that might grow into much larger corporations, but it is strictly regulated to avoid too much debt backlog.
Business Loan Rates
If you’re looking for a business loan, you’ll be wanting to know about the rates. Unfortunately, there isn’t a ‘one size fits all’ option when it comes to business loans. They will change depending on the length of the loan, as well as the loan type.
Your current credit score will also affect the rates you are offered – a good credit rating will mean you may get lower interest rates, whereas a bad credit rating will result in much higher rates being applied. Interest can be anywhere from 5% to 20% – with bad credit ratings often leading lenders to exceed this.