It can get confusing, trying to pick exactly which loan type or purpose to use when creating your project. Here’s a list of types of loans for small business and what they are best used for.
Line of Credit/Working Capital: This is like having a credit card for your business but as an account with a lender. The lender will establish a limit on how much your line of credit is, and you can access it, via withdrawals, debit payments or checks, as you need to in order to operate your business. Payments on a line of credit make more of the line available, and you can access as much or as little as needed during the life of the line.
Accounts Receivable Financing: If your business has a lot of invoices that need to be paid by your clients, you can make a deal with some lenders to get that money now but at a discount. So if you have $100,000 that your business is owed, you can sell those invoices to a lender who will give you, for example, $92,000 immediately and then collect the outstanding balances through their business instead of yours. This can be a great cash flow solution for some businesses, especially those with a production cost or high cash out put, such as staffing agencies.
Purchase Order Financing: Like accounts receivable financing, purchase order financing can be a great cash flow solution for some businesses. For example, you’re a small cosmetics company and just got an order from a mass market, national retailer. You need money to be able to actually produce that order so you can sell it. In some cases, you can take that PO and sell part or all of it to a lender, and then they collect when the invoice is paid by your customer.You won’t get the full value of the purchase order, but the cash flow enables you to grow your business and maintain cash flow.
Factoring: This is another term for accounts receivable financing. The lender that buys the receivables is called the factor.
SBA Loan: The Small Business Administration guarantees a variety of loans through its agency, from microloans (up to $35,000) to 504 loans (owner occupied real estate), working capital loans, patriot loans for veterans and export loans. You can choose the general SBA Loan category and then detail in the description if you know that you fit into any of the specific SBA loanprograms. You can work out the specifics with your potential lenders. See our blog about the SBA for more information about how it can help your small business.
Business Equipment Purchase Loan: From computers to restaurant equipment, businesses need equipment to do what they do. Choose Business Equipment Purchase as the type for a loan for durable items of high value, such as copiers, computers, large construction equipment, industrial stoves and more.
Bridge Loan: A bridge loan helps make it from one part of a contract or business cycle to the next, providing a financial bridge between draws. For example, some businesses might get a large construction contract that has only small payments before completion, but of course, the business needs to pay workers and buy supplies for that job. A bridge loan, using the contract as an asset or collateral, can help achieve that.
Property Purchase Loan: When your business needs to buy buildings or land, a commercial mortgage or property purchase loan is the way to go.
Property Refinance Loan: When interest rates come down, it can be a great time to refinance existing commercial mortgages and property loans,saving businesses money on interest in the long term and possibly lowering payments in the short term.
Boat or Yacht Loan/Aircraft Loan/Commercial Vehicle Loan: These are exactly what they sound like! Weemba allows you to create a loan project for any commercial transportation needs you have, whether that is one limo or a fleet of cabs, a charter bus, a tourism helicopter, sight-seeing boat or a commercial fishing boat… or five of them.
Commercial Debt Consolidation Loan: When interest rates come down, adebt consolidation loan can allow your business to pay off higher interest debt, such as credit card debt, and save money!
Office Remodeling Loan: If your work space needs a face lift, use office remodeling loan as your loan type. Paint, carpet, electrical and plumbing work – anything that needs to be done to your existing office or production space falls into this category.
New Construction Loan: Finally ready to build your factory or retail store? A new construction loan is exactly what you need to do that. The credit requirements may or may not be more strict than for purchasing an existing building, and the lender may want to see more cash on hand or use other assets as collateral until the building is complete.
Expansion of Business Loan: This type of loan is a catch-all for growing your business. If you need a loan to expand payroll or marketing and advertising or to have more inventory on hand, choose an expansion ofbusiness loan.
Farming or Agriculture Loan: Seed, equipment and more can be purchased with a farming or agriculture loan. If you’re in the business of growing things or raising them, this is the type of loan to grow YOUR business in doing so.
Letter of Credit/Credit Enhancement: This is a letter from a lender here in the United States that is used by a lender in another country to verify your business’ credit and financial position in order to become involved in import/export work.
Other Asset Based Loan: Use this category to post for other asset-based business loans, such as inventory financing, or other loans with collateral, that do not fit into accounts receivable financing or purchase order financing.
Other Business Loan: We tried to think of everything, but if you need a business loan for some reason that we left out, use Other Business loan as the category and be as detailed as possible in your descriptions.
Sole Proprietors can borrow for all the same reasons businesses can; they just use personal credit to do so.