The trajectory of an entrepreneur is full of challenges. Among them, the ability to maintain financial health and make investments, is, of course, one of the biggest difficulties of the day to day business and its staff. Hence, it is so important to understand what business loan is and to identify when it will be beneficial to your business.
There are several ways to fund your organization, such as bank loans, angel investors, the anticipation of receivables and more.
The business loan can be useful (and in some cases, vital) either at the beginning of the company when you are building the foundations of the organization. Or, over the years, when investments are needed to:
- Heal the lack of stock
- Create outreach and marketing actions
- Make an investment in working capital, among others.
By understanding what is a business loan, you can resort to a form that meets your needs and that fits in your pocket without compromising your cash flow.
So when to make a business loan? Some situations may indicate that the time is right for this decision, including the need to:
- Wholesale purchase for reduction of purchase price
- Processes improvement
- Expansion of infrastructure and staff
- Need to reach more customers
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The business loan is a type of financing that you can use to meet the needs of your growing business.
If you need financing to expand your existing business, buy machines, invest in inventory, increase production, etc., the business loan can meet your needs.
In business loans, as well as in other types of loans, your company requests capital from a financial institution (we will see below that there are several options besides traditional banks).
From some analysis and payment guarantees, the amount is released and must be paid, with interest, fines and other charges, which form the total effective cost of the loan.
Currently, the preferred form of payment is the rebate of the total amount, in installments over a pre-agreed time period.
The truth is that this is a quick and generic explanation about what business loan is. The lending market for small businesses is constantly evolving.
As technology advances and regulation changes, many types of business financing are created. Each one with its peculiarity.
Types of Business Loans: 5 Options for Your Business
As we mentioned earlier, in seeking to understand; what is business loan and what are the options that your company has access to, there are a multitude of alternatives. Among them, loans with financial and overdraft (beware of this!).
However, 5 modalities stand out in the capital search scenario:
It is very common in startups, but it is not unique to this business model.
In this case, investors are already stabilized entrepreneurs in the market, who “lend” money to developing companies, hoping for a future return.
Financing is like a great entrepreneur’s investment in a rising business.
Anticipation of receivables
Do you know when you give a billing deadline for your customer to pay for your product or service?
In anticipation of receivables, you go up to a factoring or financial, and request the advance of this amount. That is, you will not be creating a debt, you will only be making a receipt , using money that is already yours.
Crowding, or collective funding, is a practice that uses the Internet to raise funds.
The company that wants the loan, creates a profile on a platform that offers this type of service, indicates what value is your goal and how long you need the money.
The idea is divulged and anyone can contribute with varied values.
It is interesting that the company offers a “gift” to those who contribute to the idea, such as a free trial when the service is launched.
It is the most common business loan, however, it may present higher rates and interest than the other options.
Online credit lines
The online loan is safe, fast and democratic.
The basic concept of online credit lines is to lend the requested money while you make the payment through monthly installments.
The technology also proposes a lower interest rate than those practiced by traditional financial institutions.