Small businesses are a sizable force in the American economy. They employ more than half of the American workforce, and 543,000 new small businesses join their ranks every month. While they’re busy keeping the American economy afloat, lenders are busy keeping small businesses afloat. A third of small businesses in the U.S. use loans to help them cope with unpredictable business conditions, and 38% use them to maintain inventory. Fortunately, there are a variety of types of business loans today that company owners can rely on to get them through rough patches. Let’s look at a few of the most common business loans today.
Accounts Receivable Financing
This type of asset financing arrangement allows a company to use its receivables as collateral in a financing agreement. The company gets an amount equal to a reduced value of the receivables pledged. Generally, the age of the receivables will affect the amount a lender is willing to provide. The older the receivables, the less a company can expect. This type of financing is also known as factoring.
Business Equipment Loans
One of the most popular types of business loans today, equipment loans are specifically designed to help businesses purchase or lease the equipment they need to succeed. Many lenders will allow businesses to use the equipment itself as collateral. Leasing is recommended for equipment that will become obsolete quickly, but loans tend to work well for equipment that will not age quickly.
Business Expansion Loans
Designed to help businesses grow, these loans can only be used for expansions like franchising, new locations, or mergers with other businesses. Many companies find them fairly easy to obtain, simply because success necessary to expand often comes along with profitability and creditworthiness.
Merchant Cash Advances
This method also stems from the sale of accounts receivables, though the repayment program differs from accounts receivable financing. After the cash advance is given, the lender collects a certain percentage from every credit or debit transaction until the loan is paid in full. Many small business owners prefer this method because payments are made proportionally to their profits.
Short Term Business Loans
Among the most popular business loans today, short term business loans are often used to help business owners with short term needs, like improving cash flow or repairing broken equipment. They are usually re-paid within about a year, making them a low-commitment alternative to more lengthy term loans.
Working Capital Loans
Instead of being used to buy long term assets or investments, working capital loans are meant to deal with every day expenses like clearing up accounts payable or providing wages. Some alternative lenders provide them in the form of lines of credit.
There are so many types of business loans now available to small business owners, making it easier for them to perform the formidable task of keeping the American economy moving. Which type is right for your business?