There are different types of business loans to suit different stages of a business lifecycle and different business needs. Choosing the right type of business loan can speed up the application process and minimise costs.
Finance for a start-up
For a startup company with no trading business or cash flow, it can be quite difficult to secure a business loan. An alternative is to take out an investment loan against the equity of your home or property.
A lot of the banks don’t have much of an appetite for startups, so an investment loan can be a good alternative for anyone wanting to fund a new venture. It provides flexibility and you’re more likely to secure approval. Remembering of course that you still need to demonstrate to the bank the ability to repay the loan.
Finance for quick cash flow
Similar to a line of credit, a business overdraft can be drawn down to a certain limit, but is specifically a commercial loan that is priced accordingly – and more favourably for the business. Overdrafts can be a great option for those unspecified cash flow requirements that go with owning a business, it provides the flexibility of accessing funds without much prescription.
There are a lot of unknowns that arise in business that even the best business plans can’t cater for. This type of financing takes care of those unforeseen things.
Finance for expansion or investment
Aimed at funding long-term investments, term loans are ideal for business expansion. They’re fully drawn advances for a fixed length of time with scheduled repayments. Normally secured against a valuable asset, term loans are commonly used for purchasing new equipment or moving to larger premises.
There are also a range of equipment finance options for those who require equipment upgrade but don’t particularly want to own it. Lease or rental finance is typically used for office equipment, photocopiers and such that you don’t need to ultimately own because it gets superseded.
Final thoughts
Regardless of what kind of business you’re financing, it’s always important to have a good business plan. Try to have an accurate cash flow forecast and implement a good exit strategy. Lenders want to see what you would have in place if things don’t go to plan. This is how lenders make their decisions and it will help you secure the right type of business loan for your business.