People can take the business loan according to their need and scope of their business. It takes a good innovative brain to establish the successful business.
The preliminary purpose of the business loan is to provide financial security to the businessman. He helps in removing hindrance from the business and promote success. Many times new business just drop out only because of the financial crisis and loss.
Now banks provide many kinds of business loan, in this article, we will discuss the different kinds of business lone which can be availed by the different businessman with a different scope. Many financial institutions, money lenders, and banks provide the business loan. The business loan can be taken for various business purposes such as
- To start a new business,
- Expand an existing one,
- To deal with cash flow issues, etc.
Types of business loans
Each type of business loan has its own pros and cons.
Invoice factoring and refinancing
- With invoice factoring the borrower sell unpaid invoices in exchange for an advance of between 60% to 90%.
- before the payment of remaining percentage, the lender collects the invoice amount from the borrower.
- Some lender advances the entire amount and charges the constant interest while the borrower repays the loan.
- It is easy to qualify them for invoice factoring because the invoice is a collateral on the loan.
- In refinancing it is not important to have or show your credit history or and business history.
- It takes just a few hours to get done as it is not at all time-consuming. It is easy to get the business loan through financial institution also.
- SBA loans are basically provided by the online lenders and commercial banks.
- This loan can be used for any business purpose.
- SBA loans have low APR rates and long and longer repayment terms.
- However, SBA application process is longer as well as time-consuming.
- The application process can take 3 weeks to several months.
- In order to take SBA loan, the applicant needs to have the strong credit history.
- SBA covers the number of business purposes.
- This loan is best to purchase assets like large equipment, machinery, etc.
The business line of credit
- The business line of credit is the pool of funds which can be avail when the borrower needs capital for the business.
- It basically helps in handling the gaps in cash flow.
- Business line credit is helpful
- In gating mere working capital
- Buy inventories
- Other opportunities and for the emergency in business it can be taken.
- Short-term loans are also known as regular term loans.
- The borrower needs to repay the short-term loan in a short period of time.
- Lenders offer the smaller amount of financing in the short-term loan.
- Usually, the term period of the short-term loan is 3 to 18 months.
- The purpose of this loan is basically to take the equipment for the business.
- Apply for equipment is the fastest as well as easy way.
- It is the finance to take various equipment for the business such as
- Vehicle, etc
Merchant Cash Advance
- In order to set percentage of daily credit card transaction, the Merchant Advance gives a lump sum in exchange.
- There is not any fixed loan repayment term.
- It is the most suitable loan for
- The businesses with the poor credit score
- Business with short trading histories
- The business which might not qualify the other business loan can go for the merchant cash advance.
- The loan amount in Merchant Cash advance cannot exceed with $2,50,000.
- The application process may take time of 1 to 2 days.
- A merchant cash advance or an MCA is not a loan, but rather an advance based upon the future revenues or credit card sales of a business.
- Business with the small size can apply for an MCA.
- They have an advance deposited into its account fairly quickly.
- Merchant cash advance providers evaluate risk and weight credit criteria differently than a traditional banker.
- The provider looks at credit card receipts and determines what can a business pay back the advance in a timely manner.
- Basically, the small business is selling a portion of future credit card sales to acquire capital immediately.
- Business owners who accept credit card payments or has other payment or receivables streams to obtain an advance of the funds regularly flowing through the business’ merchant account are allowed under Merchant cash advance.
Uses of Merchant Cash Advance Work
Money invested in work generating ongoing revenue
This could be anything from a new marketing campaign to a store expansion. It increases sales and cancels the debt.
Deposit the money in an interest-bearing account
- If you don’t know what to do with the advance right away, don’t fall back on bad spending habits.
- Open a bank account and start earning interest.
- That way, the money stays available for emergencies and you can recover faster while avoiding debt.
Pay off high-interest credit cards
- Stop paying interest rates and fees for credit.
- Use the borrowed money to pay your credit cards off. Put the cash toward paying off the advance faster.
Use the funds for payroll and vendor services
Every business owner understands the stress of making sure all of their ends are covered and it also give you the means to cover your payroll and expenses when your profit margin falls short.
Avoid the penalties and late fees associated with operating costs
- Bridging the gap between a shortfall is difficult.
- If you’re dealing with collections and past due accounts.
- A merchant cash advance help you with overhead costs until your revenue increases and also help in pay off utility.
How Does a Merchant Cash Advance Work?
- MCA provider and small business made an agreement regarding
- Advance amount
- Payback amount, and
- Holdback percentage.
- The advance is transferred to the business’ bank account in exchange for a future percentage of receivables or credit card receipts after an agreement once made.
The daily revenues or credit card receipts are withheld to pay back the MCA and it is called “holdback”. It will continue until the advance is paid in full. The collateral required for a traditional small business loan can be eliminated to a business owner’s merchant account.
The more transactions a business does, the faster they’re able to repay the advance. Transactions should be made lower on any given day, the draw from the merchant account will also be less. During the times of slow business, the business’ payback is relative to their incoming merchant account deposits.
Benefits of Merchant Cash Advance
Applying is fast and easy
- Merchant cash advances are faster to obtain than bank loans simply because there’s less paperwork, making the process far less bureaucratic than a bank loan
- Generally, within week cash advances are provided, some providers like Merchant Lender, even offer same day approval.
Bad credit isn’t an issue
- Unlike bank loans, merchant cash advances have higher approval rates.
- Many businesses that can’t qualify for a business loan, do qualify for a merchant cash advance.
- For example, Merchant Lenders has a 95% approval rate, making it very efficient for you to get the funds you need in order to reach your business objectives.
No collateral is necessary
Unlike other credit loans, there is no need to risk your home or other assets for a cash advance.
Repay only on the money you make
- A cash advance is repaid through a portion of your business’ daily credit/debit receipts.
- This means the exact amount of money paid back is based on a fixed percentage of your sales until the advance is paid back in full.
- There is no fixed due date or fixed payments for paying back the advance.
You can use the money from a cash advance any way you choose, whether it’s for inventory, renovations or repairs, you have the freedom to manage your business’s cash flow as you need.