How Does A Business Loan Work

Business loans give firm owners access to capital to hold on in their business. A lender will give company owner money, which that owner must pay back with interest, over a period of time. In addition to that, the general mechanics of a company loan is something you probably know well. It falls under the category of debt financing and it is a way to get the money your company needs to grow. This article is going to look on the types of loans and how they work.

Types Of Business Loans

The following are the types of firm loans.

Term Loan

When your company qualifies for term loan, it receives an agreed upon sum of money that it will pay off plus interest with planned monthly payments over an agreed upon repayment term. Also provide large loan amount, so if you fund with a term loan, you can gain access to loan amounts. In addition, they generally offer loan repayment term length that are on the longer side, which means that you could have anywhere from one to five years to repay your loan.

Equipment Financing

This is when a company takes loans on loans specifically in order to pay for a piece of equipment that it needs. Also it is a type of self-secured loan, meaning that the loan that you buy with the loan’s proceeds acts as collateral for the loan. Additionally, your loan term for equipment financing will generally be the projected life of the piece of equipment you buy with the loan proceeds. The lender will be taking on less risk by lending you money because the equipment acts as collateral for the loan.

Invoice Financing

This type of firm loans provides advanced capital to their owners who are patiently awaiting outstanding invoices. With this type of firm loan, you can receive a loan of up to 90% of your invoice’s worth with the invoice itself acting as a form of guarantee to the loans. In addition, invoice financing is secured by invoice itself, you will be able to get lower rates on your financings. Rates to invoice financing are typically represented as factor fees, charged on the reserve amount being held by the financing company. You will typically be charged a 3% origination fee and be charged a 1% factor fee each week the invoice goes unpaid.

Merchant cash advances

Lenders who offer merchant cash advances consider your company’s future credit card sales to be an asset. So with merchant cash advances, your repayments are money that you can actually see and they redirect automatically to your lender on a daily basis before they even reach your business’s account. In addition to that, merchant cash advances do tend to be on the more expensive side. If the business is slow, you could be paying off your merchant cash advance for a long time.


The types of business loans have it’s own set of requirements and features.