Types of Business Loans

Types of Business Loans

Types Of Business Loans

A loan that is offered to businessmen, individuals, firms, or organizations for specific business purposes. It helps the borrower to start or invest in a new business and expand its business. Some companies take business loans to improve their services and to gain the financial assistance that they need. The companies apply for the business loan to pay the expenses that they were unable to pay. Some new companies take this loan to pay the salaries and wages of their employees until the new company generates profit. Like other loans, the business loan is a debt that needs to be pay-back with the addition of interest according to the terms and conditions of the loan of the bank or financial institution which is offering the loan.

Types of Business Loans

There are different types of business loans according to the requirements of the businesses. Some of its types are described below:

Bank Loan

A loan obtained from a bank is known as the bank loan. This is the most common and popular type of bank loan. However, securing a bank loan is not as easy as it seems. Bank loan can either be secured or unsecured.

  • Secured bank Loans: In these type of loans, the borrower has to pledge its property/house as collateral. If the borrower fails to pay back the loan then the bank has the rights to sell his property to recover its loan.
  • Unsecured bank loans: As the name suggests, you don’t have to pledge your assets as collateral. These are monetary loans. The interest rate, loan limit and time period are decided by the borrower’s credit history and income. These loans are difficult to get and interest rate for these loans is higher than secured loans.

Asset-based loan

In this type of loan, the borrower has to pledge some of its company assets as collateral to get the loan. Assets may include premises, stock, etc. These loans are a popular choice for small businesses. This means borrowing money against the company assets.

Invoice-based loan

Traditional loans have become difficult to get for small enterprises. Due to this reason, some financial institutions have introduced an alternative option than traditional loans which is invoice discounting or factoring. Enterprises borrow money against their invoices. As soon as the new invoices are created, they receive the funds. The lender charges interest on the loan until the loan is paid. In factoring, the lender takes the ownership of the borrower ledger and to secure payment the lending company uses its own team. While in invoice discounting, the borrower maintains its ledger and makes payments itself.

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