how to improve your financial position

If your business is just starting out, you’ll likely need at least a small business loan. Click here to learn what type of business loan you should get.

Many feel that if they go to their bank and request a business loan only to get turned down they are out of luck. 

Others think they likewise will have no luck trying to get credit help to finance a start-up, as they’ll have no business history to present.

Before you take out a loan for your business, it’s best to know what options are available to you. Really the type of business loan you go with is determined by several factors, such as the type of business you have.

This is especially true if you were about to heighten your risk by putting some of your own assets on the line as part of a collateral loan.

This article will overview some common types of business loans so you can make a more informed decision to become a more successful businessman.

Line-of-Credit Type of Business Loan

This is a great low-risk option, not just for a small business, but for businesses of any size.

It is a type of loan that is incredibly flexible and, although it is considered a short-term loan, it can be used as part of a long-term arrangement. 

How it Works

The way this type of business loan works is that the lender gives you access to a pool of money in a set amount. This pool will often range anywhere from $1,000 to $500,000.

Rather than borrow this sum as a loan, you have the option to draw from as much of this preset amount as needed as many times as needed. You pay interest only on the money that is actually borrowed. 

Who It’s For

As mentioned, this is usually a short-term, temporary option. Using a line-of-credit loan in this manner is more like a standard loan. You borrow the amount you need up to a fixed amount and then you pay off this financing with interest.

Going with this type of loan as a short-term option is great for a small business or start-up where there are obvious, foreseeable purchases that will need to be made, but you just aren’t sure exactly how much these will cost. 

It’s also a great option for a small business to finance their initial inventory build-up before they can make their first major sales. 

This type of business loan structure can be used as a more long-term, permanent option. Rather than take out a single large line-of-credit over a set, temporary amount of time, you can have it be cyclic, or revolving.

When you go with this structure, your line-of-credit loan acts more like a credit card with a high credit line. You borrow what you need up to a fixed amount, just like having a set credit line on a credit card. Once you pay your balance, this credit line resets to be used over again.

This is a great option for small and large businesses alike who’s structure is such that they’ll be cyclically purchasing large amounts of inventory which will take some time to get a return on. It allows such businesses to keep a cash flow even before selling their entire inventory.

One quick note on line-of-credit business loans–these are usually only reserved for those who already have established an excellent credit history.

Personal Loans for Your Start-Up

What if you don’t have any business history? Or you could have a less-than-ideal credit history. Will this completely prevent you from getting the financing needed to turn your vision into a reality?

Not necessarily.

One of the great benefits to this type of loan is that there is a wealth of options. Banks and a great many online lenders alike offer personal loans. 

How it Works

As the name would suggest, this type of loan is based on your personal finances and your personal financial history. Things a lender may want information about regarding your financial situation may include:

  • Employment status
  • Credit score
  • Amount of money currently to your name
  • Worth of assets in your possession

Based on these factors a lender will approve you for a personal loan of a set amount with a given interest rate. 

Both the amount of capital and the repayment term are going to be smaller in a personal loan.

Some lenders even offer the type of small business loans no credit check will come with. It is good to note, though, that in this case collateral will almost always be expected with this type of business loan. This would be an option you would look into if you have neither an established business history nor a decent credit history.

Who It’s For

Since the capital of these loans will be smaller, this type of loan is best for start-ups who need just a smaller bit of money to cover the operating costs needed to get them off the ground.

Business Credit Cards

Another great option overlooked in the way of borrowing money for their small business or startup is getting a business credit card.

How it Works

Business credit cards simply act as a small revolving loan for business expenses. Applying for a business credit card will follow a similar application and approval process as when applying for a personal credit card.

Also similar to personal credit cards is the fact that you can earn rewards points on the business purchases you make with the card.

Who It’s For

Business credit cards are great for small businesses which have consistent, ongoing expenses throughout their borrowing term (each month).

While business credit cards are primarily purposed to cover ongoing expenses, they can also be used to cover initial start-up costs as long as this is a low sum. A business credit card with 0% introductory APR is a great option for this situation.

Start Your Business off Right by Borrowing the Right Way 

The type of business loan you choose to finance your small business or start-up can have implications years into your future. It can affect your credit score, your personal assets, and the very chance of success your business has. 

This is why it is crucial to stay informed on the potential options that would be best for your unique business.


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