Startup loans are an important part of creating a successful business. That’s why finding the right kind of loan for your startup is essential unless you can self-fund.
Before securing a loan, you’ll need to do a lot of research. There are many types of loans fitting for different kinds of businesses but maybe not for yours.
You need to understand the different kinds of loans and how to obtain them. Of course, you’ll also need a clear idea of what loan option would be the best for your small business.
Here are all the possible loans that can benefit you and your objectives.
1. Small business loans
Banks and other financial institutions credit small business loans. These types of loans are secured, meaning some of your assets will need to be offered as collateral. In addition, you need to go through a qualification process, and only if you pass, then you will get some cash to spend how you see fit.
The great thing about small business loans is that you get more time for repayment. Long repayment time is one of the greatest benefits of SBA loans. You get up to 10 years to return the loan. Additionally, SBA loans offer low fees and competitive rates, which is always a plus.
There are at least 9 types of small business loans, among which the 7(a) loan program is the most popular with small business owners.
2. Short-term loans
Small businesses and startups can also take advantage of short-term loans. You receive an amount of cash up front when you apply for this type of loan. The less positive thing about short-term loans is that they, unlike small business loans, have a short repayment time – hence their name. The repayment time is somewhere around 2 years.
If interested, Sparrow loans company offers fast and flexible short-term loans. Plus, you don’t need tons of paperwork for this type of loan, and the whole process of getting the loan is fast.
Different types of short-term loans include a line of credit, payday loans, and merchant cash advances, to name a few.
3. Business credit cards
You can finance your startup with your business credit card. A business credit card loan works on the same principle as a personal credit card. You can use whatever sum of money you need, as long as you pay back the amount you used.
However, if you don’t pay the entire balance by the statement date, you’ll owe interests. So, be careful when using business credit card loans. Also, we can’t continue without saying that high-interest rates and minimal purchase protection are the greatest downsides of this type of loan.
4. Equipment loans
Equipment loans are great for established businesses and in some cases startups as well. At some point, your business will need to upgrade or replace the existing equipment. That’s where these loans are used – when you need to buy specific equipment, even cars.
Typically, with an equipment loan, you can finance around 80% of the total purchase price. These loans are considered secured since the equipment you bought is considered collateral if you fail to repay the money. Regarding loan rates, they are lower and more reasonable than with unsecured loans.
The good thing about equipment loans is that the process is quick. Additionally, the payment schedule is flexible. Of course, this will largely depend on your lender, but in most cases, they are all quite flexible.
5. Purchase order financing
If your startup company receives many orders but doesn’t have enough money to fulfill them all, then purchase order financing is the best type of loan for you.
For example, your company received a large order from a buyer, but you don’t have enough cash to pay the supplier. A certain financial institution can provide the funds to pay the supplier so that you can fulfill your orders.
All you have to do is to provide the lender with the purchase order, and they will pay the supplier directly. Once the purchase is delivered to the buyer, they will pay the lender. Only then will the lender deduct their fees and pay you the rest of the money or your profits.
You can apply with traditional or alternative PO financing companies. The traditional PO financing companies are banks, while alternative lenders include FinTech companies that can finance purchase orders.
When it comes to interest rates, they will depend on the size of the order and the set time for repayment, amongst other things.
Choosing the right kind of loan for your startup will require some research and planning. Find everything you can about all the existing loans and, weigh your options, putting the pros and cons on paper. When you have everything figured out, apply for a certain loan.
Hopefully, we managed to give you some idea of all the possible loans out there.
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