There are many types of business loans that could help you with your business endeavors. Regardless of whether it is an established successful business or a small start up business, there are various types of loans that suits the need of all. Some of the business loans are briefly elaborated here.
Capital Loans
Every business needs a working capital. Mostly a share of the working capital comes from the personal finance of the owner, but in order to get the business moving, a larger sum is required and usually this sum is given to the owner based on his own personal credit score. Banks have to know that this person is reliable enough to repay back and that his business plan deserves the working capital. The maximum amount of capital borrowed is dependent upon the accounts receivable and restaurants or retail stores do not qualify for capital loans.
Term Loan
This loan has monthly interest and payment plans and with each passing month, the principal amount decreases as the interests are paid regularly.
This mode of loan taking is aimed to providing long term financing help for physical assets. With physical assets come amortization period and thus this period should match with the useful life of the asset purchased. Usually the maximum time period for amortization is of 5 years or less depending upon the type of asset for which the loan is being taken.
SBA Lending
SBA loans are for those businesses who have a tough time facing the bank criteria and not exactly on league with the bank’s standard. These people then approach the SBA scheme where the government guarantees partial repayment to the bank incase the borrower defaults on the loan. To achieve this loan however, the borrower must be approved by the bank. Though the bank itself will not take sole responsibility of the borrower it can recommend him to the SBA. The maximum amount allotted is up to $1 million for small businesses and includes in itself equipment, real estate, working capital and purchasing existing businesses.
Lease
As in case of loans, leasing also has the same requirements and risks. In case of leasing the financial institution owns the rights to the equipments and goods and the amortization period should match with the useful life of the asset, which is not more than 3 years. Value is placed on the type of asset leased and what would be its resale value.
Mortgage
This mortgage is not for any residential plot but rather for a building on a piece of land. Amortization period of this mortgage is around 10 to 30 years, depending on the banks. As it is, business mortgage is an intricate process and getting it requires a considerable amount of effort, still one cannot be sure what would be the reaction of the bank. The bank is a dangerous business entity and will not invest in any business it does not consider fit. They will require to you pay for a full property appraisal in case of business mortgages, as well as the environmental audit and the legal fees.
