When you decide to borrow money for your company, it is important that you know what kind of loan you want and for how long. There are two basic types of Small Business Loans - credit lines and loans - and two general categories of timing or terms for the loan - short term or long term.
When requesting a Small Business Loan, you must have a detailed description of the destination of the funds you will be requesting. Keep in mind that there is an important link between the duration of the loan and your capacity as a business to face the commitment.
The source of payment for Small Business Loans that are Short Term is usually a result of the profits generated from sales of products or services. Long Term loans are generally paid through the earnings the company makes in a given period of time.
Credit Line: A line of credit is an arrangement in which the bank disburses the funds when needed, up to a predetermined limit (usually one year).
You can also choose for a Term Loan. They are Small Business Loans that provide working capital which is later reimbursed in small installments over a pre-established number of years.
Short Term Loans usually have a duration of one year. These types of Small Business Loans are used by companies to add more liquidity to their financial statements either to buy inventory or to finance their accounts receivables. The lending bank anticipates to start receiving payments on the loan after the company starts selling their products, or collection the money owed by the customer, or when the inventory is sold.
Small Business Loans that are for a period greater than one year are called, Long Term Loans. Generally, companies resort to this kinds of loans in order to increase their efficiency and reduce their operative costs. These types of loans usually result in the purchase of machinery that allow faster and efficient production or the improvements of the company’s facilities.
Wade Henderson - recognized Professional - 15 yrs in the Business Finance Field - strong reputation for getting the deal done IMMFinancial.com Commercial Factoring Discounting Factoring
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