You may sometimes need a loan for your small business until you earn enough to cover all your needs. You may need the money to balance out shortfalls in your working capital or to grow your business to the next level. As your business grows and your assets allow you to earn more money, you will be able to repay the loan to the bank or other financial institution according to a scheduled repayment plan.
As you might imagine, there are many different types of business loans. We will briefly discuss some common types of business loans like installment loans, settlement loans, line of credit loans, balloon loans, letter of credit, interim loans, and secured and unsecured loans. The better you understand the types of loans available, the easier it will be to choose the best type of loan for your particular needs.
Installment Loans
An installment loan is one that you can pay over time using predetermined scheduled payments. Generally speaking, you will make at least two payments towards the loan. The loan amount may only be a few months. It could also be for as much as 30 years. A perfect example an installment loan is a mortgage.
Settlement Loans
A settlement loan is one that you may want to apply for if you are facing increasing debt and don’t have enough income to pay your bills. This type of loan is known by many other names, for instance, “lawsuit cash advances,” “lawsuit loans,” “settlement funding,” and “lawsuit funding.” If you are a plaintiff in a lawsuit, you may need to borrow some money cash against the proceeds that you expect to get from the lawsuit. “
Line of Credit Loans
A line of credit loan is a disbursement and it is reusable. Once you are approved for a line of credit, you are free to access as much of the approved line of credit you want at any time you need the money. You will only pay interest on the amount of money that you use rather than pay interest on the complete line of approved credit.
Balloon Loans
A balloon loan is one that will not amortize over the length of its term. You will need to make a balloon payment at the end of the period or term for the remaining loan balance.
Letter of Credit
A letter of credit is one that is often used in international trades. It works in the same way as a guarantee. This payment mechanism used in international trades is also known by other names, such as “banker’s commercial credit” and “documentary credits.”
Interim Loan
At interim loan is one that is often used in real estate. It is a short-term loan used to close a deal. The loan covers the remaining price of the second home until you get the proceeds from the sale of your first home.
Secured and Unsecured Loans
A secured loan is one that is secured with an asset that you own. Often this is a home, although it could also be an expensive car or some other high-value property. Since the loan reduces the lender’s risk, the interest rate is lower. While it may be a safer loan from the lender’s perspective, it is a riskier option from your point of view. For instance, if your business does not succeed as well as you had hoped, and you used your house as collateral, you could lose your home.
In many ways, an unsecured loan is just the opposite. Since the lender is taking most of the risk, you have to pay more interest. Usually, these types of loans are harder to obtain. The lender will often require high creditworthiness since you are not putting up any collateral.
After you apply and get approval for most of these types of loans, you’ll get the money in a lump sum. You will be required to pay the money back in installments. The schedule for repayment will be determined by the length of the loan while the interest rate will be determined by your credit score.
