What is A Business Loan?
John’s Trucking Services is a family-owned business in Michigan with a fleet of 4 trucks driven by Mr. John and his 3 sons. The company specializes in the movement of goods across the state. The company has been doing well and Mr. John and his sons have had a discussion about expanding the fleet. They decide they will visit the local bank to find out about financing this effort. They approach the bank for a business loan.
What Is a Business Loan?
Business loans are lending agreements made between business owners and banks or private lenders. Similar to John’s Trucking Services, businesses need capital to fund operations and expansions or fund startup to begin turning a profit. Banks and lenders agree to loan a business these funds with the expectation that it will be repaid by an agreed-upon schedule, with interest of course.
Understanding business loans can help you make a decision on whether this will help or harm your company. The right business loan can help you get the capital you need to start a new venture, expand a current business, gain access to working capital and more. The converse is also true, the wrong business loan can leave you with incredible debt that could potentially bankrupt your company. Business owners should get acquainted with how business loans work in order to make the best decision.
How Do Business Loans Work?
Business loans are capital offered by lenders to businesses. Once the loan is disbursed the lenders require repayment of the principal or original loan amount with interest. Business loans usually require regular payments on a set schedule but this can vary depending on the loan terms.
The lender will take into consideration factors such as: the credit score of the business and the owner, the time in business, company financials along with any assets to be used as collateral, when determining if a loan application is to be granted.
Types of loans
Once you have a clear understanding of a business loan and how it works, it is important to choose the type that is right for your company. There are several types of business loans. To determine the right fit, carefully consider what your business needs the loan for, what repayment terms you can handle and how much money you need.
Types of business loans include:
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Business line of credit - A business line of credit is a flexible business loan that allows you to only pay interest on the portion of money that you borrow. Like a credit card, you may draw and repay funds as you need without exceeding your credit limit.
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Working capital loan - Working capital loans are short-term business loans designed to bring additional cash into the business to be used for expansion or daily expenses such as payroll or inventory purchases.
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Term loans - Term loans are common types of loans that refer to the length of time between when a loan is issued and when it is repaid. The term length can vary from one to 25 years and above.
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Small Business Administration (SBA) loans - SBA loans are government-backed loans that are available to small businesses from private-sector lenders. These are secured loans that require collateral such as an asset or the company itself.
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Fixed-asset loans - These are secured loans that involve the borrower using an asset as collateral. the asset acts as reassurance for the lender which they can claim in the event that the borrower does not pay back the loan and interest.
Once you’ve decided you need a loan, Loan Quail can help you get the funds you need to expand. Click here to apply for a loan or for a line of credit.
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Fixed-asset loans - These are secured loans that involve the borrower using an asset as collateral. the asset acts as reassurance for the lender which they can claim in the event that the borrower does not pay back the loan and interest.
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