3 Types of Business Loans to Get You Through Hard Times Unscathed

3 Types of Business Loans to Get You Through Hard Times Unscathed Here are the types of working capital loans that can help you keep the lights on while you wait for others to pay the money, they owe you.

As much as you might resent the idea of burdening your company with a loan, it might be the best solution you have to survive and grow during these current economic times. Some business loans help you transform your vision into reality while others help you get through a rough patch without severe consequences. Let’s see the types of lending options your company could access to overcome the current economic recession

1. Working Capital Loans

In this category, you will find a couple of business loans that you’re probably already familiar with. According to this company, working capital loans are instruments designed to bridge your cash flow needs. You need this type of loan when you’re waiting for payment from a client, but still need to pay rent, supplies, salaries, bills, etc. You can estimate how much money you need from a working capital loan by calculating the difference between your current assets and liabilities. Since the sum varies monthly, as you pay bills and taxes, you could rely on your operating cycle to get a more realistic estimate.

Here are the types of working capital loans that can help you keep the lights on while you wait for others to pay the money, they owe you.

Term Loans

These are types of loans that you think about when you think about business loans in general. Term loans come with repayment schedules anywhere between one and twenty-five years, fixed or variable interest rates, and satisfactory versatility. You can bridge your cash flow gaps with them, expand your business operation, pay your staff or hire specialists, etc. Talk to a banker or your lending company about short term and long-term loans. You will most likely find that short term loans are more popular for their speedy delivery and flexibility.

Business Line of Credit

Another type of working capital loan, a business line of credit works much like a credit card, but with more benefits. You have access to a significant amount (up to $500,000, usually) any time you want. Instead of receiving a lump sum to spend, you gain a pool of money to use when you need it. The maturity of such loans is usually two years, with monthly payable interest rates of up to 25%. You pay interest on the amount of money you spend from the credit line. This type of loan is helpful if you want to pay invoices, innovate the business with new equipment, pay your staff, hire more people, expand to a new location, etc.

Merchant Cash Advance

A very flexible, fast, and popular loan among SMBs and entrepreneurs, a merchant cash advance allows you to obtain financing against the future revenue of your company as collateral. You and your lender agree upon a certain percentage of monthly income that your business generates. When the lending company delivers the advance into your account (24-48 hours), you will begin repaying the loan as you gain money from your business.

Merchant cash advances work great if you need money right now, knowing that your business will generate revenue in the upcoming months. You can use such a loan for various business needs: bill payments, salaries, emergencies, equipment repairs, etc. One issue with these loans is that they are costly, so you can expect short maturity periods and premium interest rates.

2. Accounts Receivable Financing

When clients do not pay those bills, your company may run into cash flow problems. According to financial experts, unpaid invoices are among the critical factors that disrupt small and intermediate businesses. When you have to pay your bills, employees, and suppliers but are waiting for others to pay you, an accounts receivable loan may be good for you.

To get a loan from a lending company, you use your unpaid outstanding invoices to get a cash advance that bridges your cash flow gaps and keeps you afloat. Invoice financing works in many ways depending on your lender, but some universal principles apply. You might receive up to 80% of your invoices, while the lender keeps the rest of the percentage. The money arrives in a couple of days. The lender gains the remaining percent of your receivables, plus fees, and a flat processing fee.

The good news about this type of loan is that the factor rate is usually low (up to 5%), and the lender is the one going after your clients to pay their debts.

3. Business Credit Cards

If you have a personal credit card, you know how this works. As a type of business loan, credit cards are among the most user-friendly options out there. They involve less paperwork than other types of loans and allow you to access your agreed funds in up to two weeks. You can make this type of loan work in your favor. Besides the fact that it helps you go through a rough patch unscathed; it also helps you build good credit scores. Use it to boost your working capital with immediate access to cash.

It is not hard to qualify for a business credit card. If you are a new entrepreneur, it can be your ticket out of trouble whether you have bills to pay, a business event to organize and promote, a client to convince over lunch, or some quick and necessary investments to make.

Just like any loan, these “emergency-like” types of loans require your full attention. Do thorough research, choose the right lending company, and make sure you will be able to pay your loan back in the agreed amount of time. If you have no other options to make ends meet, loans can be a great tool as long as you treat them with the seriousness they require.