5 Need to Know Business Lending Terms
For both small and large business owners – whether just getting started or having been around for the past 20 years – acquiring business financing can be difficult and overwhelming. But being more aware of the lending space and having a good understanding of the basics can put you in an advantageous position.
For example, knowing the difference between a business loan and a business line of credit, and when to choose one over the other can be the difference between taking your business to the next level, and not feeding the company with the right amount of funding when it’s needed the most.
Business Term Loan
Term loans are a specific amount of money given to you, which you’ll pay back with interest over 1-5 years usually. These are most often used for established businesses when making improvements in the office, service/product offerings, equipment upgrades, expansion, etc.
The stable payback plan, often weekly or monthly payments, are simple for business owners, but some of these loans require collateral to be approved. Learn more about term loans today.
Business Line of Credit
If your business needs a credit score boost, opening up a line of credit might be just what you need. This gives you access to working capital when your small business needs it, and you’ll only pay interest on what you use.
This option can be very useful as a safety net when cash flow might become uncertain, or when you see an opportunity worth taking. It’s best to open a line of credit when you don’t really need it, so when you do, it’s there ready to go.
If you do have a low credit score, the interest rate may start out higher, and collateral might be required in some cases. Learn more about lines of credit.
If your business is pretty stable financially, but you need a little temporary boost to purchase upgraded equipment so you can take on larger or more lucrative orders, an equipment loan will work very well. This financing will vary based on your business history, the industry, and credit score. These specific types of loans are usually easier to obtain and often, the return the equipment produces pays for the loan earlier than expected. Do the numbers and share them with your loan provider. Learn more about equipment loans now.
One very important aspect of any loan application is the business income statement (profit and loss statement). These will include the business net income, revenue, and expenses for a period of time. If you have a newer business, it’s beneficial to show future revenue goals and chart out future projections for the loan provider.