Many Americans dream of starting their own companies. Entrepreneurship is not a journey for the unmotivated, unpassionate, and undedicated. Having a successful small business means long days and weekends spent working, but entrepreneurs tolerate these sacrifices because they had a vision and want to see their dream come to fruition.
While long days and weekends spent working are not ideal, there is another sacrifice that must be made that is even harder for many to swallow: depletion of finances. Unless you come from money, you may not have unlimited income to tap into that can be used to build your dream company. But don’t let finances be the deciding factor of whether or not you pursue your dream of owning your business because there are other financing options available to you.
What is a business loan?
If you need to borrow a significant sum of money, you will have to go through a lender, which is usually a bank or some other type of financial institution. Of course, this total will accrue interest over time, and the percentage of interest that you will pay will depend on who your loan is from. Some lenders may even ask you to guarantee your loan since small businesses tend to be a high-risk investment. This way, they are protected in the event that you are unable to make the necessary loan payments.
What are the different types of business loans?
There are three common business loans that every business owner should be aware of. The type of loan that you acquire is completely dependent upon which makes the most sense for your situation.
Short-Term Business Loans
As assumed by its name, short-term business loans are used for businesses with short-term needs, like funding smaller projects or building up inventory. Short-term business loans typically don’t exceed more than $100,000. One unique feature of this type of loan is that it is paid in full after a determined period of time instead of being paid back in monthly increments.
Long-Term Business Loans
This type of loan is the most commonly used. Unlike short-term business loans, these loans have a set monthly payment that needs to be paid back. Business owners often use these loans to expand their business or for larger projects that will yield big profits.
Other Financing Options
Not all loans have to come from a bank or other financial institution. There are a few other options that business owners can seek out if they wish. Some of the most common are peer-to peer loans and crowdfunding. In most cases, these are not as hefty as bank loans and often have higher interest rates.
Before you begin the process, make sure that you are first aware of your specific needs. Then, you can research the best option for you and formulate a plan accordingly.