Top 5 Types of Loans You Can Avail as a Business Owner

As a business owner, you will have to keep a good stock of your finances. You will need to know where you are putting in your money and whether your resources are in tip-top condition. Running a business is not an easy job and sometimes, you may face a situation where you might need funds. This is where you can take a Business Loan. There are several types of Business Loans a small business owner can take. Each of them has its terms and conditions and to make the most out of these loans, you will need to know how each loan is different from the other.

In this article, we will give you information on all the different types of loans available and how to make the most out of them. There are five types of business loans a small business owner can take. They are:

Balloon Loans:

These types of loans are written under different names but you can identify them by the fact that the entire amount is received when the contract is signed. The loan is called a balloon loan because only the interest is paid during the lifetime of the loan and balloon payment of the principal is supposed to be paid on the final day. Sometimes, in a balloon loan, a lender might even ask you to pay the interest and the principal in a single balloon payment. They are similar to small instalment loans.

Line-of-credit Loans:

This is the most common type of loan that is taken by small business owners. In Business Loans, you borrow the money to purchase inventory or to pay for operating costs or just for the maintenance of the company. This sort of loan is not meant for purchasing equipment or real estate. This loan is a short-term loan that will extend the cash that is available in your business’s checking. Each bank has its own way of giving this loan and it may be transferred to the person’s bank account. The business will pay the interest on the actual amount of the loan.

Most business owners choose this loan because the interest rate of this is very low and you have to pay the instalments monthly. This loan is usually written for one year and can be renewed once the time is over.

Instalment Loans:

As the name suggests, the principal and the interest are paid in equal instalments monthly. The total amount of the loan is paid at one go in your account as soon as the contract is signed. The interest is calculated from the first day to the last day of the loan. The advantage of this sort of loan is that if you can pay it before the end of the final date, there is no penalty and the bank will appropriately adjust the interest.

Secured & Unsecured Loans:

These are the most common loans that are available for business owners and as the name suggests, the loan will depend on what sort of collateral you present. Secured loans will need you to have collateral (property, bonds, stocks, and so on) and the interest rates will be low. The unsecured loans on the other hand are short-term loans that will not require you to present collateral, but the interest rate will be considerably higher than the others.

Term Loans:

The term loan is again one of the most common types of loans wherein you will get a lump sum of money and this needs to be paid after a specified amount of time. The borrowing amount is also slightly higher than the other types of amounts and the loan is disbursed in a short amount of time.

Here were the most common types of loans that you can avail as a business owner. We hope you have enough information now to decide on which loan you should be taking for your business. It is always essential to first assess whether the loan is actually needed and then make the final decision. Taking a loan is a very financially obligating decision and you should be pretty careful before taking it.