7 Types of Commercial Loans That Can Get Your Company Funded Fast!

In 2015, lenders in the United States shelled out a whopping $600 billion for business loans. With that kind of amount, you’d think all small businesses took out a loan, right?

Only three-quarters of them did though. The rest didn’t use any type of financing.

Unfortunately, lack of funding almost always gives way to business growth difficulties. In fact, 29% of small businesses failed after running out of capital. Many of them had to close up shop because they can no longer keep up their inventory.

Your business doesn’t have to be part of the somber statistics though. With various types of commercial loans to choose from, you can get the funds you need to keep your shop doors open.

Ready to learn all about your financing options? Then let’s dive right into it!

1. SBA Loans

SBA stands for Small Business Administration. It’s a government entity that supports U.S. entrepreneurs and small businesses.

But the SBA doesn’t directly issue SBA loans — they’re more of “backers” than being the actual lender. But this partial guarantee from the government is the reason SBA loans have lower APRs.

A lower APR, or annual percentage rate, makes SBA loans more affordable for businesses. These also come in several types, like microloans and SBA 7(a) loans. With a microloan, you can get funding of up to $50,000.

Sounds great, right? It definitely is, but it can be tough and time-consuming to get approved for an SBA loan.

If you can wait, then the low APR of these loans make them a great choice. If not, you should try applying for any of the other types of business loans listed here.

2. Installment Loans

An installment loan is a loan that you pay back monthly, with the payments being the same every month. Think of it as a fixed-rate mortgage, wherein you make unchanging monthly payments. The difference is, these loans don’t need collateral like secured loans.

With these loans, you can borrow larger amounts of up to $350,000 (or even higher). They also have longer repayment terms, with some lenders offering terms of up to 36 months. You can get these loans from commercial banks, credit unions, and online lenders.

Their higher borrowing limits also make them ideal for larger business expenses. You’ll also get the cash in a lump sum, so you can use it for any business expense. It can fund pricey equipment purchases, new store branches, and even new hire costs.

Their flexible terms also let you enjoy lower interest rates if you choose a shorter term. They’re easier to apply for than SBA loans too, although many lenders still look at credit scores. You can still qualify even with a bad credit score but expect higher interest rates.

Before you sign the loan contract, be sure to check for any early repayment penalties. Some lenders charge a small fee for paying off installment loans earlier than the term. Even if they don’t, there wouldn’t be any interest adjustments.

Also, capital amounts and interest rates vary from lender to lender. Compare each loan offer, especially interest rates, as even a small difference can save you a lot. Here’s a useful site that can give you a clearer idea of how loan amounts and terms work.

3. Equipment Loans

Let’s say your business operations rely on a workhorse, such as a pickup truck. But today’s pickup trucks now sell for an average price of more than $44,000! If you’re like 86.3% of small business owners who make less than $100,000 a year, that’s a lot of money.

Good news is, equipment loans exist exactly for this reason. It can fund the purchase of any equipment you need to run your business, including a truck.

Granted, you can take out regular businesses loans to invest in new equipment. But dedicated equipment financing often comes with a lower APR. That’s because the equipment serves as collateral, so it secures the loan.

Since it’s a secured type of business loan, you may still qualify even with bad credit ratings. Plus, you get to use the equipment even while you’re still paying back the money you owe.

4. Invoice Factoring

Invoice factoring is an immediate way to convert your outstanding invoices into cash. It lets you cash in on pending invoices before they’re due.

You can’t use all invoices though, only those that are due within three months. But it’s one of the quickest ways to get funding for your small business, plus, it’s in cash.

Most factoring companies pay these invoices in two separate payments. The first is an advance payment for the invoice, usually 80% of the amount due. They’ll pay the rest, minus service fees, once your client pays the invoice.

5. Line-of-Credit Loans

A business line of credit works much like how a credit card does — you’ll pay only for what you borrow. When you take out this type of financing, the lender will loan you an amount with a certain limit, say $50,000. You can borrow and withdraw against this limit as much as you need.

So, for instance, you need $20,000 to restock your inventory and make small equipment purchases. You can withdraw that amount against your $50,000 line of credit limit. The lender will only apply the interest rate on what you took out (the $20,000).

Repayment terms and interest rates depend on the lender. But what’s good about this type of financing is you don’t have to repay the entire $20,000 with interest in one go. You can pay only the monthly minimum due, but it’s best if you repay it in larger increments.

That way, you can avoid ballooning interest payments, which make loans harder to pay back. Remember, late loan payments are one of the quickest ways to hurt your credit score.

Besides, early repayments also let you access a bigger credit limit down the line. This can make a huge difference when a bigger business expense comes up.

6. Unsecured Loans

Unsecured loans are any financing program that doesn’t require pledging collateral. But because they’re unsecured, only low-risk small business owners often qualify for them.

Short term loans are some of the most common types of unsecured loans. You don’t have to pledge your business’ equipment or inventory to secure these loans. But, be careful as most of these loans carry high APRs.

7. Secured Loans

Secured loans are loans that need borrowers to pledge collateral, like equipment loans. But some lenders allow borrowers to pledge any other valuable asset as a security for the loan. Aside from the title of your business’ vehicles, your inventory can also be collateral.

Since these loans have a backup payment source, they’re often easier to qualify for. But make sure you make good on your repayments. Defaulting will result in your losing ownership of the pledged collateral.

Get the Funds You Need Now with These Types of Commercial Loans

With so many types of commercial loans, you’re likely to find one that best suits your business’ needs. Whether it’s to start a business, buy equipment, or finance the payroll. You can even get a loan to move your business to a better commercial building!

What’s important is to always compare interest rates and avoid those with a lot of penalties. Also, be sure that you choose loans with terms that make repayment easier.

Once lenders grant your business loans, next is to prioritize debt payments. Here’s an in-depth guide telling you exactly how to do that.

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