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What are the Different Types of Business Loans?

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There are many reasons why your small e-commerce business needs to borrow money. And there are more than enough options available to get it done. Having many loan options is good, but choosing the right one for your business is challenging.

Here are the types of Business Loans; it will lead you to the right one:

Term Loans:

A Term Loan also called an installment loan, is a loan that most people think of when they need a business loan. Your company can borrow money from a traditional bank, credit union, or online lender with this loan. The funds are then repaid over a set time (often at a fixed interest rate).

Pros and Cons:

  • Get money upfront to put into your small business.
  • Allow you to lend a larger sum of money than other loans.
  • A personal guarantee or collateral is required.
  • Term loans from online lenders are usually more expensive than from traditional banks.

Best For:

  • If you need a significant amount of money right away, a term loan would be your best alternative. 
  • If you operate an established firm, you may qualify for a loan with an interest rate of a few percent.

SBA Loans

SBA loans are issued by banks and other lenders and are guaranteed by the Small Business Administration (SBA) itself. SBA loan repayment periods are determined by how you intend to use the funds. Loans range from 7 to 10 years for working capital and 10 to 25 years for equipment and real estate purchases.

Pros and Cons:

  • Some of the most reasonable rates are available.
  • You have the option of borrowing up to $5 million.
  • Repayment terms are extensive.
  • Qualifying for an SBA loan is not very easy.
  • The application process is lengthy and tough.

Best For:

  • Businesses wishing to expand or refinance existing debts.
  • Lenders with good credit are willing to wait a long time for funding.

Amazon Lending

Amazon Lending is a program where Amazon provides qualifying sellers with short-term business loans. It is basically to help them finance more goods to sell on the Amazon marketplace. Amazon loans are exclusively available by invitation. It ranges in value from $1,000 to $750,000. People using Amazon Private Label Services can use Amazon lending features more easily than others.

Pros and Cons:

  • The application process is not very difficult.
  • Offers short-term loans.
  • Amazon Lending does not perform credit checks.

Best For:

  • You can avail of the loan if you use Amazon Private Label Services.

Equipment Loans

Equipment loans, which may include semi-truck financing, assist you in purchasing equipment for your firm. Cars, vans, and light vehicles are eligible for business auto loans. The total duration of an equipment loan is usually matched to the equipment’s estimated life span. So the equipment itself serves as security for the loan. Rates will be decided by the equipment’s value and the strength of your company. 

Pros and Cons:

  • You will have equity in the equipment.
  • If your credit and business finances are strong, you can get low rates.
  • You need to make a down payment.
  • Equipment can become outdated far faster than the term of your loan.

Best For:

  • Owners of businesses who need to buy or lease equipment, machinery, or cars.

Microloans

Your small firm may only require minimal capital to achieve its next objective in some situations. Microloans are small business loans that range from $50,000 to $100,000. These loans can be used for operating capital, expansion, or beginning costs, and the qualification conditions are often relaxed.

Pros and Cons:

  • Low cost.
  • Other services, such as advising and training, will be given.
  • Smaller borrowing amounts are a disadvantage.
  • You may be required to meet severe eligibility criteria.

Best For:

  • New businesses and startups.
  • Companies in need of a little sum of money.
  • Borrowers with bad credit.

Merchant cash advances

In this loan, you receive an upfront payment that you can use to fund your business. And you pay back a merchant cash advance by withholding a percentage of your daily credit or debit card. Or you can pay back by making fixed daily or weekly withdrawals from a bank account. 

Pros and Cons:

  • Quick money.
  • Financing without assets.
  • Some of the most expensive borrowing costs – up to 350% in some situations.
  • Cash flow issues can arise from frequent repayments.

Best For:

  • Businesses with a larger volume of credit card sales and the ability to handle frequent repayments.
  • Businesses cannot obtain funding elsewhere and cannot wait for funds.

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