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Types of Financing Available to Small Businesses

For any business to grow, having access to capital is extremely important. Unfortunately, finding investors to put forth equity can be challenging.

Luckily, thousands of banks across the country are willing to provide loans to small businesses to help them grow and develop. There are a wide variety of financing options and loan types available to small businesses.

One type of financing option available to small businesses are lines of credit. A line of credit is a loan that you can borrow from whenever you need the money and repay whenever you have excess cash.

A line of credit is often a necessity for a business to bridge the gap between when a service is provided and when they are actually paid. For example, a small business may sell a product or service to a client, but not actually require payment for 30 to 60 days. Since this will require a cash outflow from the business, it could cause a liquidity issue.

The line of credit will provide the company with the necessary liquidity in these times.

Many small businesses could also benefit from a term loan. A term loan is a type of loan that has a fixed repayment term and a fixed monthly payment. A term loan can be used by a business for a variety of needs but is frequently used to purchase equipment or inventory.

The bank will normally provide a term loan with an amortization schedule that matches the useful life of the equipment. In many cases, a bank will provide up to 100% of the purchase of the equipment as long as the business can afford to make the monthly payments to the bank.

The third type of loan available would be a real estate mortgage. Many small businesses could benefit greatly by purchasing their office building or industrial space, as opposed to renting as it will allow the business to build equity over time and could actually save money each month.

Many banks will provide small businesses with mortgages to acquire their property, expand or redevelop an existing property, or even build a new one.

Banks frequently will provide financing up to 90% of the acquisition price and will offer amortization periods as long as 25 years.

Types of Financing Available to Small Businesses
Jack Crosswell
12/15/2017 Use