There are many different types of commercial loans; all differ based on the borrowers needs. Some borrowers need money for equipment, some just need extra money on hand for the “what ifs” that owning a business brings. Although there are several choices, the most common Business loans are equipment loans, real estate loans, business capital loans, lines of credit and business credit cards. All of these types of loans come with different requirements and there are many more loans such as corporate loans that are only for larger companies. The size of your company will determine the type of loan you will get, who will handle your loan, and the size of your loan.
Equipment LoansOne of the most common types of loans that businesses get are equipment loans. Equipment loans can be given to companies to purchase equipment at startup or to buy newer equipment after the company has been around for a while. The type of equipment varies, but can include everything from trucks and farm equipment to office equipment such as computers. Most financial institutions will use the equipment itself as collateral. Collateral is something that the borrower and lender agree upon that the lender can take if the borrower does not pay their loan. For equipment loans, borrowers can choose to take collateral out on just one piece of equipment, or in cases of large amounts of equipment, they may take out what is called “blanket” collateral, which is collateral on all the equipment owned by the company.
Lines of CreditA line of credit is a temporary source of financing. Typically the term on a line of credit is between twelve and twenty-four months. A line of credit is basically a set amount of credit that borrowers are allowed to draw and pay off within the limits set by the financial institution. This means that if you need money, the financial institution will take it off of your line of credit and put it in your deposit account. This type of loan is a lot like the home equity that many individuals seek. A line of credit is truly meant to help with short term needs. For example if you need to buy inventory during a peak time of business, borrowers can use the line of credit, but once the inventory is sold, you should pay down the line of credit. That is the reason why lines of credit are for such short terms. By having these terms so short, the usage of the line can be more carefully monitored.
Real Estate LoansReal Estate Loans are loans to purchase commercial and residential real estate. Borrowers may get a real estate loan to purchase their own real estate that their business intends to occupy, or real estate for another business or individual to occupy. This means that a borrower could take out a loan to purchase property and then rent that property out to another business. A borrower can also purchase residential real estate with a real estate loan in order to rent those homes out to others. However, terms and rates are typically lower for borrowers who intend to occupy the space themselves. This is because if a borrower is renting property and the renter can not pay, then the borrower will probably not be able to pay the lender. If they are occupying the property themselves, the borrower is paying the loan directly and is not dependant upon another party to make a payment to them so that they can pay the loan.
Business Credit CardsBusiness credit cards are probably the easiest type of business loan to qualify for because of the variety of terms they can be used under. These cards can be used for anything related to your business, from taking clients to dinner, to purchasing office supplies. They can have all different limits and all rates, depending upon your credit and/or your businesses credit. Since the creation of reward points, air miles, and other credit card bonuses, many larger companies are beginning to use business credit cards. Also, many companies are starting to pay all of their bills with credit cards, and credit card companies in turn are providing detailed spreadsheets of what was paid, and spent. This makes organization a lot easier, especially for large businesses. Many financial institutions will also allow borrowers to use credit cards for overdraft protection.