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Business loans are a form of financing you can use to smooth cash flow or seize an opportunity. You can find them from banks, online lenders and alternative providers.
The types of loans you qualify for may depend on your personal credit, your company’s financial history and the lender’s policies. Some loan types require collateral, while others are unsecured.
Term Loans
There are several types of business term loans, r500 loan in south africa including traditional bank term loans, online lenders and non-bank alternative lenders. With these loans, you borrow a lump sum and pay it back in fixed monthly installments over a set amount of time, usually 18 months to five years. Some lenders offer shorter terms or longer terms; you can also choose whether to secure the loan with a lump-sum or asset-based collateral.
These business loans may be used to purchase assets, including equipment and real estate, as well as to fund business expansion and growth. They typically have lower interest rates than credit cards and can help you build up business credit if you repay your debt on time. They may have more strict qualification requirements than some other types of small business financing, such as short-term business loans or lines of credit.
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Lines of Credit
Unlike traditional loans that pay out a lump sum at the time of approval, lines of credit offer flexible access to capital. Similar to a business credit card, you can withdraw funds as needed up to the credit limit and pay interest only on the amount you borrow. Once you repay a drawn-on amount, the credit limit replenishes so you can draw again. Business lines of credit are available from banks, online lenders and microlenders. Qualification requirements vary by lender, with banks having stricter criteria and higher rates while online lenders may have more lenient qualifications and lower rates.
There are two main types of lines of credit: revolving and nonrevolving. Revolving lines of credit are similar to a business credit card in that you can use the funds repeatedly until they’re fully repaid, while nonrevolving lines of credit provide an initial lump sum at the time of approval and close once they’ve been paid back. Whether you opt for a revolving or nonrevolving line of credit, you can expect to be required to provide some form of collateral and meet the lender’s minimum lending requirements.
A small business line of credit is a flexible financing option for navigating short-term expenses, managing cash flow or covering payroll. It typically requires a personal guarantee and a secured asset such as real estate or equipment, but not all lenders require this. Unsecured lines of credit are also available for smaller needs and often have higher limits.
SBA 7(a) Loans
The Small Business Administration (SBA) offers a variety of loan programs designed to help small businesses meet their financing needs. These loans typically offer competitive terms, including lower down payments and flexible overhead requirements. They also often come with counseling and education that can help your business succeed. However, there are some restrictions. For example, you must have used other funding sources before applying for a loan. You must also be operating for profit. And, you cannot use the funds for real estate or speculation.
SBA 7(a) loans are available for a variety of purposes, including purchasing furniture and supplies, financing short-term working capital, and buying equipment and leasehold improvements. They may be structured as term loans or lines of credit. The maximum term for a 7(a) loan is 25 years, with extensions possible. Lenders and borrowers negotiate interest rates, which are subject to SBA maximums. In addition, the 7(a) CAPLines program offers revolving working-capital financing to meet seasonal increases in accounts receivable and inventory.
The SBA charges an upfront fee for each loan that’s guaranteed, but lenders are permitted to pass this cost onto the borrower. Lenders are required to follow the same written collateral policies and procedures that they use for non-SBA-guaranteed commercial loans. They are also required to follow SBA regulations regarding the minimum size of collateral and its value.
