Types of Loans

You can obtain funds to start your business from banks or other financial institutions through personal or commercial credit.

Personal credit includes automobile loans, mortgages for a home, and credit cards.
Commercial credit comes in the form of business loans. There are different types of business loans available.

Some various forms of commercial credit include:

Short-term loans are usually less than a year and are some of the most common loans granted to applicants. Short term loans provide interim working capital for temporary cash needs in businesses. Repayment is usually in one lump sum when inventory or accounts receivable are converted to cash.

Intermediate-term loans last anywhere from one to three years. They are usually used for new business start-ups; business expansion; or the purchase of new equipment.

Long-term loans are for a period between three to five years (based in part by the life of the financed asset). Long-term loans are usually granted for new business start-ups, capital improvements, or acquiring fixed assets. Repayments are made by installments either monthly or quarterly.

A line of credit gives a recipient the ability to borrow money again and again up to their credit limit. A line of credit can be extremely important to businesses experiencing seasonal fluctuations. Generally the line of credit must be paid in full at least once a year.

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