Small Business Loans

The term “small business loans” encompasses all small business financing options available.Although, technically your business doesn’t have to be “small” in order to get one.Each type of small business loan is unique in addressing different specific needs.One type of small business loan helps entrepreneurs get new equipment. Another helps make unexpected purchases. Others help business owners with fair to bad credit scores, etc.

Small business loans act in very similar ways to personal loans. However, small business loans can only be used for business use.If you’ve ever took out a mortgage loan, student loans, or any other type of loan for personal use, then you already have a good idea as to how they work.

A business financier lends money to a business owner, who can then use the capital to fund their specific needs.

The loan is then gradually paid off over time until all lended funds are depleted.

Different types of small business loans are paid off in different ways. Some come with fixed payment terms, in which a certain amount of capital and interest must be paid in regular predetermined intervals.Others come with payment terms that offer flexible deadlines that are affected the nature of each small business loan itself, and not by predetermined payment periods. Similarly, business loan interest rates also differ depending on the type of small business loan you obtain. We will explore these concepts in further detail below.

Interest rates vary depending on the type of small business loan acquired.

The two most common types of rates include annual percentage rate and factor rate, although many other interest rate types are also offered via alternative financing.Factor rates are the most common type of interest rates among fixed-rate small business loans. These are represented by a fixed decimal number which sets the rate for the lifespan of the business term loan.Annual percentage rate, or APR, is represented by a percentage. This percentage fluctuates depending on the amount drawn from financing options such as a credit line by a business owner within a given year.

APR rates provide more control and planning opportunities for business owners to determine how little or how much they pay in interest. Factor rates, on the other hand, give business owners a more solid and consistent knowledge as to exactly how much they will have to pay within a given time.There are, however, small business loans that do not follow interest rates at all. These include merchant cash advances, in which a fluctuating portion of sales are used to pay off a lump sum of money, given to the business owner in advance.

SBA loan rates, on the other hand, are largely bound generally lower government prime rates.With such a wide spread of different rates to choose from, speak to an advisor before moving forward with rates you aren’t completely comfortable with.