Types of loans SMEs should consider for the growth of their business

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Being enterprising can be a good thing, even admirable. However, there are a lot of factors that one needs to consider, especially in terms of finance, when you are a Small and medium-sized enterprise (SME). Listed below are five of the popular types of SME loan that you could consider for growth and stability of your business:

  • Term loans

Term loans are one of the most popular types of loans that any business considers. When you take a term loan, you borrow a specific amount, and repay the money over the course of the term, usually between 1- 5 years. The terms of the loan depend on the lender, the amount of money borrowed, the credit rating or credibility of the SME, the purpose of the loan, etc. Such loans can be acquired from banks or other lenders. Such lenders will want to know the purpose of the loan, your credit rating, and require you to give some collateral.

  • Short- term loans

More and more small businesses are turning to these loans to take care of the cash- flow gaps that occur frequently with such kind of businesses. These loans come handy when you need to pay your employees, build an inventory, pay taxes, etc. They are similar to term loans, with the difference being that these loans entail a higher interest rate and shorter instalment durations such as making daily payments.

  • Equipment loans

You take out this loan to buy equipment for your enterprise, using the said equipment as collateral. In case that you are unable to repay the loan, the lender takes possession of the equipment. The expected length of the term is the expected life of the purchased equipment itself. Such loans are easy to get based on your business’ credit rating, and your business’ history. Equipment loans usually have fixed monthly payments, a fixed term length, and fixed interest rates.

  • Merchant cash advance

Do most of your customers pay you using credit card? Then you may want to consider merchant cash advance. They entail little paperwork, that can be approved and funded within a day. The process involves the lender lending you money based on expected credit sales, and you need to repay the lender by paying him a part of your sales for each day along with a fee. However, they entail a high Annual Percentage Rate of as high as 80%, making them expensive, so proceed with caution on this type of loan.

  • Line of credit

A line of credit can be acquired for multiple purposes such as working capital. These loans can be both, unsecured or secured. If it is secured, then the collateral is often in the form of equipment or inventory. One advantage of getting a line of credit is that you don’t have to repay until you actually tap into the credit given to you. The interest rates are lower than that of conventional term loans, as long as you keep making the required payments on time.

Make sure you thoroughly research into the kind of loans available for your SME before you start with your endeavour.