Choosing the right loan for your business needs
Knowing your specific goals can help determine the lending solution that can best support them
As a small business owner, you’re bound to encounter unexpected expenses. Expansion opportunities, supply chain volatility, and necessary technology upgrades can be time-sensitive and require financial resources to cover the expense while maintaining cash flow operations. But before going to the bank to take out a loan, ask yourself a few key questions:
- What are my immediate goals? Are you trying to expand to a second location? Increase capacity to fulfill orders? Set yourself up to weather season fluctuations in your industry? Having a clearly defined desired outcome will keep you focused on finding the right funding for your specific needs.
- What kind of funding do I need? With the options available, it’s useful to know whether you need short-term flexibility, long-term funding, or financing for specific purchases like equipment or real estate.
- What is my current financial situation? Be aware of your ability to take on additional payments. Knowing what you can add to your spreadsheet is useful as you review interest rates, repayment schedules, and collateral requirements. to make sure you are set up for success.
- What are my lending options? Once you have a clear idea of what your specific needs are, it’s time to do your research. But don’t worry — we’re here to provide the basics.
Learn just a few of the options so you can better determine the lending solution for the specific milestone you are facing.
Line of credit
A business line of credit is a flexible loan from a financial institution that gives you access to money you can draw from as you need it. As you repay the principal, the amount you can access replenishes. You can continue drawing against your line of credit for as long as your account remains in good standing.
Lines of credit are useful for temporary costs, such as seasonal business fluctuations, unexpected urgent repairs, small-scale expansions or renovations, and inventory purchases. When managed properly, a business line of credit can also help establish a solid business credit history, which will help obtain larger loans or better credit terms in the future.
Business lines of credit are beneficial because they are flexible and interest is not paid on the whole amount, but instead only paid on the amount of credit that has been used.
Term loan
A business term loan provides you with a lump sum of cash at the start of the loan, which you then repay over a set number of years, typically referred to as the ‘term’ of the loan. The loan repayment schedule is generally fixed, so you pay the same amount on a regular schedule. Each payment is put towards both the principal (the amount you borrowed) and the interest. Once the loan is paid back, it is no longer available to you.
Term loans tend to be beneficial for larger business investments like large pieces of equipment that must be paid for upfront, or large-scale facility or real estate purchases. Term loans are preferrable for larger expenditures because they have a fixed repayment schedule and longer repayment terms than lines of credit. This means payments will be more predictable and widespread, often meaning they are more manageable.
Equipment loans
Like car loans, equipment loans are used to purchase a specific item—equipment for your business. These loans can be a great solution for a restaurant’s kitchen appliances or a manufacturer’s heavy machinery. The loan itself is structured much like a term loan, with the equipment purchased typically serving as the loan’s collateral. This means that if the loan payments are not kept up to date, the lender can seize the equipment. Because the loan has collateral it’s often easier to obtain than an unsecured loan.
Healthcare practice loans
These loans are designed to help you access the funding you need to run a healthcare practice, whether you’re a doctor, dentist, chiropractor, veterinarian, physical therapist or other healthcare provider. The money from a healthcare practice loan can be used to purchase or start a new practice, buy equipment, purchase commercial property, and consolidate debts.
Commercial real estate financing
You can access commercial real estate financing to expand, renovate, or refinance your business location. It can be used for any type of property used for business purposes, such as office buildings, restaurants, shopping centers, or warehouses.
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As always, it is recommended that you speak with a trusted lender or financial advisor to get professional guidance on loan terms, eligibility, and the application process. The fine print can be overwhelming, and knowing you have someone in your corner who understands the industry can help provide peace of mind and set you up for success.
