One of the biggest challenges facing any small business owner is getting a loan. Fortunately, there are several different types of business loans available, each with its own benefits and requirements. Before you begin shopping for a loan, you should familiarize yourself with the most common types of small business loans in Charlotte NC, to find out which one is best for your business.
Inventory loans are secured by inventory that is owned by the business but has not yet been sold. This type of loan requires no credit check and can be used to cover seasonal inventory needs or a sudden increase in orders. Approvals for inventory loans can be obtained within 24 hours. However, this type of loan does require some form of collateral (i.e., inventory) and may also require a personal guarantee, depending on the size of the loan and the amount borrowed.
Purchase Order Financing
Purchase order financing allows businesses to sell their products to customers, even if they do not have the cash on hand to fulfill these orders. Purchase order financing makes it possible for businesses to take large orders while still having the necessary working capital on hand to produce those orders and deliver them in a timely manner.
Asset-based loans are secured by assets owned by a business, such as accounts receivables, inventory, and equipment. This type of loan is often used by companies that are growing and have a hard time qualifying for other types of financing because they have high debt or don’t have a long history in the business.
You can borrow up to 85 percent of your accounts receivables and up to 50 percent of your inventory or equipment. You can also use real estate as collateral, but if the loan is not backed by at least 20 percent equity in the property, it will be considered high risk by lenders.
SBA loans are small business loans backed by the Small Business Administration. They offer low rates and long terms to help small businesses with their long-term financing needs. With an SBA loan, you can obtain up to $5 million in financing.
Merchant Cash Advances
Merchant cash advances are a type of loan that is repaid by deducting a percentage of your daily credit card sales. This type of loan is perfect for businesses that accept credit card payments and have consistent cash flow. Merchant cash advances are typically repaid in six to nine months.
Secured Business Loans
Secured small business loans require collateral, such as real estate or inventory, in the case of default. Collateralized business loans offer lower interest rates and more favorable repayment terms. Some secured loans include asset-based loans, equipment financing, term loans, SBA loans, and invoice factoring.
Unsecured Business Loans
Unsecured small business loans do not require collateral, so they can be more difficult to qualify for than secured loans. They also typically carry higher interest rates and shorter repayment terms than secured small business loans — especially if you have a poor credit score.
Is There an Alternative to Small Business Loans?
Invoice factoring is an alternative to bank loans that can help your small business manage cash flow gaps when invoices go unpaid for weeks or months. With invoice factoring, you sell your receivables at a discount to get immediate cash rather than waiting around for customers to pay their invoices. Invoice factoring firms advance you money on your outstanding invoices and later purchase them from you at a discount once your customers actually pay them off.
Small business loans are primarily meant for business purposes. And there are several different types of small business loans, including bank loans, mezzanine financing, asset-based financing, invoice factoring, micro-loans from nonprofits, and peer-to-peer lending.
To obtain a traditional business bank loan, you’ll need good personal credit and an established business with strong cash flow. If you’re starting a new business or have a poor credit history, you may want to consider other options before taking out a small business loan.
However, If need be, a small business loan worth shopping around. Small businesses around the country are having a more difficult time getting credit. The biggest banks have tightened their lending standards, so if you’ve been turned down by your local bank, don’t worry since there are many other places to turn to for a small business loan.