Business Loans
Business loans are made by four major types of lenders - banks, finance companies, commercial real estate lenders, and private individuals. Hopefully this article will help you take your type of business loan request to the right type of business loan lender. By the way, if you need a commercial real estate loan, please click here.
First of all, what are business loans anyway? Does the term business loan mean the same thing as commercial loan? The answer is yes. The word commercial simply means business. Business loans are loans that help you make money in some form of occupation. The opposite of a business loan is a loan for personal, family or household purposes, like a loan to add a roof to your family home or to buy a car for your child.
TYPES OF BUSINESS LOANS
There are many different types of business loans:
- Commercial Real Estate Loans: Are you trying to buy a commercial building, build one, fix up your existing commercial building, pay off a balloon payment, or pull some cash out of your existing commercial building? If so, please click here.
- Small Business Loans (no real estate involved): Are you trying to start a new business, buy an existing business, or expand your own business? If there is no commercial real estate involved, you should apply to your local bank for an SBA loan. Banks make the vast majority of all small SBA loans. If you are buying a business, you might also ask the seller to allow you to pay for the business in monthly payments over five years, along with 8% interest. A great many businesses are purchased using seller-carried financing.
- Small Business Loans With Real Estate Involved: If you already own your commercial building or if you are buying a restaurant, for example, and the building is included in the price, please click here.
- Accounts Receivable Financing: Do you provide a service or manufacture a product with payment due sixty days later? If you get in a cash flow bind, it might be possible to take your accounts receivable to the bank and pledge them as collateral for a loan.
- Equipment Financing: Let's suppose you want to buy a new plastic injection molding machine for your little manufacturing company. The cheapest way to buy is not with a lease but rather by making an outright purchase using an equipment loan from the bank. Your local bank usually has the cheapest rate on an equipment loan.
- Inventory Financing: Suppose you manufacture rowboats for fisherman, and you have worked all year to produce your current inventory of boats for the upcoming season. Suddenly you learn that one of your competitors just went bankrupt. You can buy $2 million in aluminum panels from the bankruptcy estate for just $75,000 - but, darn, you just don't have the dough. You may be able to go down to your local bank and pledge your current inventory of completed boats in return for a $75,000 inventory loan.
- Lines of Credit: Suppose your cash flow is seasonal. You sell hundreds of ski boats in the winter and spring, but come the fall, you have very little income coming in the door. You should apply to your local bank for a line of credit that you pay off in the spring and draw down on in the fall. Once again, your local bank is the best bet for most types of business loans.
- Leasing: Leasing is not quite the same thing as renting because most leases have a very small buyout of the product at the end of the lease. You might lease a $20,000 machine over three years, and at the end of the lease, you can buy this $20,000 machine for $250. Be careful! Leasing is a rip-off. If you figure out the interest rate that the leasing company is charging you, you'll find its close to 30%! If you just cannot afford a large down payment and you cannot qualify for an equipment loan from the bank, you may have no other choice but to lease. Small finance companies provide most leases for new businesses. Just look up "Equipment Leasing" using Goggle for a list of potential leasing companies.
- Factoring: Ouch. When you sell your accounts receivable at a large discount, its called factoring. Prepare to take a painful haircut. Just look up "Factoring" using Goggle for a list of potential factoring companies. Ouch-ouch-ouch!