Business Loans: Understanding The Different Loan Types

Business Loans: Understanding The Different Loan Types

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There are many different kinds of business loans, making it essential to do your research before beginning any application process. Rushing the process is the same as walking into a car lot and asking the salesman to buy a car, any one will do. You’d end up with a new car but it’s unlikely you’ll get the color, size or loan terms you need.

It’s easy just to say “I need a business loan” - until you realize how many types of loans exist. Most of our customers are overwhelmed by this point, so let’s start with the first step.

The best place to start is identifying what your specific use will be for the loan. If your objective for the money isn’t clear, it’s safe to say you have work to do before filling out the application. Nevertheless let’s review the different types of loan options

  • Business Term Loans
  • SBA Loans for Small Business Loans
  • Business Lines of Credit
  • Equipment Loans
  • Invoice Factoring
  • Invoice Financing
  • Merchant Cash Advances
Business Term Loans

Business Term Loans

A business term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms. Term loans are normally meant for established small businesses with sound financial statements. In exchange for a specified amount of cash, the borrower agrees to a certain repayment schedule with a fixed or floating interest rate.

Term loans may require substantial down payments to reduce the payment amounts and the total cost of the loan.

Types of Term Loans

Term loans come in several forms, usually reflecting the lifespan of the loan. These include:

  • Short term business loans: These types of term loans are usually offered to firms that don't qualify for a line of credit. They generally run less than a year, though they can also refer to a loan of up to 18 months.3
  • Intermediate-term loans: These loans generally run between one to three years and are paid in monthly installments from a company’s cash flow.
  • Long term business loans: These loans last anywhere between three to 25 years. They use company assets as collateral and require monthly or quarterly payments from profits or cash flow. They limit other financial commitments the company may take on, including other debts, dividends, or principals' salaries, and can require an amount of profit set aside specifically for loan repayment.

Why do businesses get terms loans

A term loan is usually meant for equipment, real estate, or working capital paid off between one and 25 years. A small business often uses the cash from a term loan to purchase fixed assets, such as equipment or a new building for its production process. Some businesses borrow the cash they need to operate from month to month. Many banks have established term-loan programs specifically to help companies in this way.

SBA Loans For A Small Business

SBA Loans For A Small Business

An SBA loan is a small business loan offered by banks and lenders. Partly guaranteed by the U.S small business administration. SBA loans have tight lending standards and requirements. However their extremely flexible rates and terms can make them one of the best ways to finance your business. There's a few different types of SBA loans available: 7a, 504, micro, disaster, etc. So feel free at any time to fill out the form or give us a call to explore your options.

Business Lines of Credit

A line of credit is a credit facility extended by a bank or other financial institution to a government, business or individual customer that enables the customer to draw on the facility when the customer needs funds. A line of credit takes several forms, such as an overdraft limit, demand loan, special purpose, export packing credit, term loan, discounting, purchase of commercial bills, traditional revolving credit card account, etc. It is effectively a source of funds that can readily be tapped at the borrower's discretion. Interest is paid only on money actually withdrawn.

Lines of credit can be secured by collateral, or may be unsecured. Lines of credit are often extended by banks, financial institutions and other licensed consumer lenders to creditworthy customers (though certain special-purpose lines of credit may not have creditworthiness requirements) to address fluctuating cash flow needs of the customer. The maximum amount of funds a customer is allowed to draw from a line of credit is typically called the credit limit or overdraft limit. The term credit limit is commonly used for credit cards whereas the term overdraft limit is more commonly used for bank accounts.

Learn more about your Business Line Of Credit options

Equipment Loans

Equipment financing is a type of small-business loan designed specifically for the purchase of machinery and equipment essential to running your business. You can use an equipment loan to purchase anything from office furniture and medical equipment to farm machinery or commercial ovens.

The size of the loan should match the price of the equipment you’re purchasing, while the loan term should match how long you expect to use the new equipment. If you’re buying commercial ovens that you expect to use for 10 years years, get a loan with a 10-year term. A shorter term may have you scrambling to make payments, and a longer term means you’ll be paying for the equipment after you stop using it.

Invoice Factoring

Invoice factoring turns unpaid invoices into fast cash to help finance short-term needs for your small business. As a small business owner, you can turn your unpaid customer invoices into fast cash with invoice factoring. This financing option is best for business owners whose customers are other businesses. Because these customers typically don't pay for goods or services right away, invoice factoring can provide immediate cash for business owners to keep paying employees or other expenses.

Learn more about how invoice factoring works.

Why is it so important to utilize Invoice factoring

Although it can be frustrating to wait for customers to pay off their remaining balances, qualifying for invoice factoring can help you navigate this challenge. Invoice factoring loans can be a great option for business owners that need financing while they wait for customer payments.

Invoice Financing

With invoice financing, also known as accounts receivable financing, your invoices are purchased by the lender, but you must pay a percentage of the customer’s balance.

Then, the invoice financing company will work on collecting the customer’s payment. Once they receive it, the remaining amount is factored back to your business. This amount won’t include origination fees that were acquired.

Both invoice factoring and invoice financing can be beneficial, but it’s important to determine which method makes more sense for your company. If you want more control over collecting your outstanding balances, invoice financing might be the best choice. However, if you want to avoid spending time contacting your customers about their outstanding balances, factoring could be a better option.

Merchant Cash Advances MCA

Merchant Cash Advances (MCA)

A merchant cash advance provides alternative financing to a traditional small-business loan. Merchant cash advance providers say their financing product is not technically a loan. An MCA provider gives you an upfront sum of cash in exchange for a slice of your future sales.

Microloans

Microloans are normally defined as any loan for $50,000 or less. Since many banks are unwilling to provide smaller loan amounts, microloans are a great way for business owners to get access to capital. Some microloan programs are open to all types of small business owners, whereas others focus on providing financing to specific types of entrepreneurs, such as those in low-income communities or countries and female entrepreneurs.

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First Union Lending LLC is a dually licensed Lender/Broker with its main offices located at 4900 Millenia Blvd First Floor Orlando, FL 32839. First Union Lending LLC and its ads are meant for continental United States, including Alaska and Hawaii small business owners. Business Loans offered by First Union Lending LLC have varying rates and terms that can range from 30 - 120 payments and all rates and terms are based on eligibility of the business and its owners. The actual terms are based on credit, business history, industry, amount and terms. As an example, a $5,000 loan paid over 5 years at 8% would have a total repayment of $6,082.92 over the life of the loan. We use the latest encryption to protect sensitive information transmitted online, as well as run our own secure server network to ensure your information is protected offline as well.

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