If you have clients who are small business owners, a few of them have likely talked to you about wanting to expand their companies. They may have also mentioned how it can be challenging to find the capital to do that.
Being knowledgeable about the various types of loans allows you to help your clients grow their businesses and allows you to offer yet another valuable, billable service.
Here are the various types of business loans and the basic facts you need to know about each.
Lines of credit. Considered a short-term fix, a line of credit is used much like a credit card. The funding can be used as needed, rather than all at once in one large sum. Because the interest and fees can be high, experts recommend using a line of credit when a business is experiencing temporary cash flow problems and NOT for capital improvements, expansion, or business acquisition.
Small Business Association (SBA) loans. These government-backed loans are offered by banks and other lenders such as credit unions. Although the name suggests otherwise, these loans are not directly granted by the SBA.
Term loans. This is a common type of long-term bank loan granted to business owners, usually for larger amounts at interest rates lower than short-term loans and repaid on a monthly basis. They’re often granted to successful businesses for expansion, acquisitions, refinancing, and working capital.
There are two types of term loans. An unsecured term loan is awarded based on borrowers’ creditworthiness, credit history, and reputation. With secured loans, borrowers take out the loan against specific collateral (like property or an asset) that the lender can seize in case of default.
Alternative financing. Non-bank lending products include merchant cash advances that are repaid as a percentage of daily credit card receipts. These generally are short-term loans at very high interest rates, as much as 30 to 40 percent.
Peer-to-peer lending (P2P), also known as crowdlending, is one form of alternative financing. P2P loans are unsecured personal loans made to the business owner as an individual rather than to the company. The funding is often raised by individuals through online platforms.
Marketplace lending. An evolution of P2P lending, marketplace lending connects borrowers and lenders through online platforms. This technology makes it easier and faster for small businesses to secure capital from hedge funds, family funds, insurance companies, and other institutional (non-bank) lenders.
Help your small business clients navigate their lending options by enlisting the expertise of Biz2Credit, a leading firm involved in marketplace lending that has disrupted the bank-based loan system of financing small businesses. Contact Biz2Credit loan experts for a free consultation by calling 800-200-5678 or visiting www.biz2credit.com/taxact.
Remember, you’re also a small business owner. If you’re in the market for a loan to expand your practice, look no further than Biz2Credit.