Business Loans

Who Needs a Business Loan?

Business loans aren't just for companies that are struggling. Business loans are commonly used by startups or young companies to facilitate growth and expansion. Loans can also be used to handle the seasonal ups and downs of a business, pay for operating expenses, or help get a new project started.

At some point in every business's existence a business loan is necessary, with most entrepreneurs requesting funding at some stage in their business’ lifecycle.

Even some of the most successful businesses in the world occasionally take out business loans to deal with the often unpredictable nature of business cash flow.

To prepare for an upcoming Christmas season, for instance, retailers are often tasked with ordering enough product and shipping materials to handle a large number of customer orders.

During the month of December, these businesses realize they'll have a significant influx of cash, but in October and November, this cash is not yet available. By using a business loan, a merchant can access the capital it needs to stock up for peak times of year.

Learn more about business loans:

What to Consider

While a business loan can give your company a much-needed income boost, it's important to enter the process with your eyes wide open.

Some business loans can come with exorbitant hidden fees that will eat into the profit a company will make during the period following the loan.

Because of this, some businesses find they get themselves in greater financial difficulty.

A business should also consider the duration of repayments before choosing a loan option that works for them. Often entrepreneurs are lured in by companies that promise the moon, only to find that the loan must be paid back more quickly than intended.

It's important that a business fully understand the terms of any business loan before signing on the dotted line.

Types of Loans

There are many loan options for businesses in need of cash. Here are a few of the most popular types of business loans.

SBA Loans - The Small Business Administration (SBA) offers several different kinds of loans designed to meet each business's unique needs. These loans are offered through a variety of partner financial institutions, who follow the SBA's guidelines for providing loans to small businesses.
Government Loans - Some businesses may be eligible to apply for government loans. However, this option is not available to all types of business.
Line-of-Credit Loans - Most banks and credit unions offer line-of-credit loans to qualified business customers. Check with your financial institution to see what's available.
Short-Term Loans - For businesses that simply need a short-term loan to get through a particularly low-cash flow season, short-term loans may be the best option. These loans generally have shorter repayment requirements and higher interest rates, but qualifying is often easier than a long-term loan.
Long-Term Loans - While a long-term loan may require passing a credit check, the terms are often more agreeable than those for short-term loans. Businesses can enjoy lower interest rates and longer repayment periods, allowing them the option to repay later if they need it.
Accounts Receivable Factoring - These loans are designed to provide small businesses with a short-term cash infusion. With accounts receivable factoring, your business will take out a loan against your receivables. While it's a quick way to get cash, it may not be the best option for all businesses.
Working Capital Loans - For businesses who need financial help for things like payroll, accounts payable and other unexpected expenses, a working capital loan can provide much needed relief. Typically, the application process is faster but rates and terms will depend upon your credit rating.

Whether your business is in need of a short-term loan or something with more flexible terms, there's likely an option available for your unique needs. As your business continues to grow, you'll find your options open up, allowing you to access such features as line-of-credit loans or long-term loan types.

If you or your business experiences a bad credit rating, there are still options available to you, although the terms are likely to be less favorable than those with good credit.

Whatever stage your business currently occupies, check with your financial institution to find out what options are available to you.