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You may know there are different types of financing options for starting up, running and growing your small business. But do you know what each type of loan is generally used for and when each one is most appropriate?
Short-term vs. Long-term Loans—A major characteristic to consider when contemplating loans is the length of the loan and whether it is short term or long term. The length of loan is typically matched to the loan purpose:
This article helps define the ways in which borrowed funds are best used for small businesses.
Small Business Loan Types:
1. Small Business Lines of Credit: Your safety net
A small business credit line is similar to a personal credit card or a personal line of credit.
As an entrepreneur and new business owner, you will want to ensure that your firm is able to continue its operations and has sufficient funds to cover day-to-day business operations. If your business is service-related, the major elements that consume cash are inventory and accounts receivable. A line of credit allows your business to borrow funds, re-pay borrowed funds, and borrow again—and you will only pay interest on the amount borrowed.
2. Small Business Term Loans: When you want to help grow you business
A term loan is used when a business borrows money for a period exceeding one year.
Term loans are generally used to finance a specific one-time need such as new equipment or company vehicle. If you need cash to expand, improve, or make repairs to your plant or facility, BECU Small Business Term Loans can help finance your business need.
3. Commercial Real Estate Loans: For the long-term
Buying commercial property can offer benefits to your business.
If your business is the property owner, your business will not be subject to rent increases; you will have the ability to manage your commercial real estate space without restrictions from a property owner; and you will build equity with each mortgage payment. If you retire or sell your business but not the property, as a retired entrepreneur, you can enjoy an income stream from the rents on your commercial property.
4. Small Business Credit Card
A monthly, itemized statement provides an easy way to track your business expenses.
Many small businesses use business credit cards to pay for office supplies and equipment. A company credit card is a convenient way to purchase business products, track expenses, and equip multiple employees with a purchasing power that's easier to manage than petty cash.
"Credit cards are convenient because you don't have to carry cash, they help us earn good credit ratings, and we get a nice itemized list of our purchases every month," says Debbie Wege, BECU Community Relations & Education Manager. "They are nice to have for emergencies, but day-to-day, we should not spend money we don't really have. Remember things bought on credit cost you more over time, so credit should be used wisely and sparingly."
Whether you need help financing your small business or have questions about which type of loan is best for your needs, a BECU Small Business Services Officer can help. Take a look at our products and services and then contact a Small Business Services Officer to learn more.