What is a loan?
Generally speaking, there are four different loan-types that a lender may offer. Within each of these, there are sub-categories as well, such as a secured loan, which is backed by collateral and an unsecured loan, which is offered to someone who is considered “low-risk”.
- A long-term loan, which is commonly used for business expansion, acquisition or refinancing. These types of loans tend to be for a large amount and offer a lower interest rate compared to short-term loans.
- A short-term loan is typically for building up inventory, completing small projects or meeting other immediate demands. They’re due in full at the end of a defined period.
- A line-of-credit is considered an open loan in that your business can draw from it when and how it wants, much like a credit card. Interest and fees can be high, so they’re typically used as a temporary solution.
- Alternative financing are non-bank lending options such as leasebacks, cash advances and crowdfunding. They’re typically smaller than bank loans and can come with high interest rates.
Keeping your documents in order will help make the loan application process much simpler and more painless. (Hint: Wave’s smart dashboard organizes your income, expenses, payments, and invoices.) Here are other helpful tips:
- A good lender wants your business to succeed as much as you do. No matter what type of loan you’re interested in for your organization, be sure to keep a close, open dialogue with your lender so that they can give you the best advice.
- Know and understand your credit score so that you can explain any shortfalls if you have them.
- Avoid predatory loans such as payday loans, which are borrowed against your next paycheck.