Obtaining a business loan can be a crucial step for any entrepreneur looking to grow their company. However, timing is everything when it comes to taking out a loan, as the right time can lead to success, while the wrong time can lead to financial hardship.
Many entrepreneurs turn to business loans to help them get their businesses off the ground or to finance their expansion plans. There are several factors that entrepreneurs should consider before applying for a business loan, and one of them is the type of business loan you need.
Different Types Of Business Loans
There are many types of business loans. Although they may look similar, their approaches to providing funds differ. That said, here are some examples of a type of business loan:
Installment Loans
Installment loans, such as personal loans, offer the most convenience for businesses. In this loan, you can obtain money at the beginning of the loan, which you’ll have to pay regularly. Whenever you pay this loan, you’d have to pay a portion of the money borrowed and the loan’s interest rate. If you are considering applying for a loan, you can look for lending services, such as Auckland loans, to help in this regard.
Balloon Loans
When you sign the business loan contract, balloon loans will offer you a total amount of cash, similar to installment loans. Yet, as you pay your loans monthly, you would only have to pay interest on that principal. On the last payment, you’ll have to pay a single balloon payment of the principal due.
Lines Of Credit
Lines of credit (LOC) is one of the most common business loans. Similar to a credit card, it’s a sum of credit that you can use at any period. This business loan allows you to borrow money until you reach the limit. Once you have paid all the dues, you can take out money again, as in the case of an open line of credit.
There are plenty of other types of business loans available out there. When considering which type of business loan is best for your business, it’s important to carefully weigh the pros and cons of each option.
Aside from knowing the suitable type of business loan, an entrepreneur must also consider the perfect time when to apply for such a loan.
When Is The Right Time To Get A Business Loan?
There is no one-size-fits-all answer to this question, as the right time to get a business loan will depend on your specific circumstances and financial needs. Here are a few things to consider when deciding whether it is the right time for your business to get a loan.
You Need Money For A New Opportunity
Perhaps a client or another business has given you a great offer. Maybe you’ve known that a space has been made available for your potential store. It may also be that you want to hire new staff. If that’s the case, a business loan can help you.
A business loan helps your business to expand further. It also enables you to have more financial capabilities. This kind of loan is usually vital to make the most of whatever opportunity exists.
Yet, as you do this, remember to plan appropriately. This is crucial to see if catering to an opportunity will drive more profits. Ultimately, having more earnings because of business loans and opportunities can help you pay the debt more quickly.
You Want A Source For Your Emergency Fund
There is a risk for wildfires, fires, tornadoes, and other disasters to happen to any business. Cyberattacks are also possible, and they can affect your revenue and put a halt to your operations.
Though insurance can help you with business interruption or property damage, it’s not your only option. Business insurance requires a certain period before you can obtain the money. Yet, if you need the money immediately to avoid further issues, looking for another alternative may be the better move.
This is where emergency funds come into play. This type of fund is necessary, so your operations won’t be affected by unexpected business challenges. This can help maintain your business and remain strong from one year to the next. Fortunately, you can borrow loans from lending services to save money for unplanned mishaps.
You Need To Build Your Credit Score
Lending services often consider business credit scores as a basis for whether to lend cash to a business. Credit scoring firms compute it based on a business’s repayment records and credit obligations with lenders and suppliers. Credit scores also depend on a business’s legal filings, size and type, the amount of time it has existed, and repayment performance.
That said, a good credit score helps in getting better financing. But to build your credit score, you must first improve your borrowing record. You may have been more cautious about using your credit in the past. Yet, improving your credit requires time.
The good news is that you can use a business loan to build your credit. This puts more records in your borrowing history. And so, you can guarantee that you get better financing for your business ventures or operations.
Final Thoughts
If your business has just begun or it may have been in a bad situation, borrowing a business loan can be one of the perfect options that you can choose. Three examples of business loans that you can opt for are lines of credit, installment loans, and balloon loans.
That said, a business loan offers many benefits. For one, you can manage your cash flow more smoothly. You can also maintain your business operations if unexpected events ever put a limit on your financial resources or business processes. Lastly, you can serve your customers much faster.
Knowing the right time to borrow money from lending services is also important. This article outlined some of those. By carefully evaluating your current business performance and your purpose for getting a loan, you can determine whether a business loan is a right option for your business.
