Different Business Lending Instruments

Many business owners are unaware of the different types of financing options available to them. As a result, they often end up taking on more debt than necessary or not securing the most favorable terms. In this blog post, we will provide an overview of some of the most common business lending instruments so that you can make the best decision for your company.

SBA Loans

SBA loans are government-backed loans that are typically used for small businesses. The Small Business Administration (SBA) does not directly lend money to businesses; instead, they guarantee a portion of the loan, which reduces the risk for the lender and makes it more likely that the loan will be approved. SBA loans can be used for a variety of purposes, including working capital, inventory, and equipment.

Invoice Factoring

Invoice factoring is a type of financing in which businesses sell their accounts receivable (invoices) to a third party at a discount. The third party then pays the business upfront for the invoices and collects payment from the customer when the invoice is due. Invoice factoring can be a good option for businesses that have difficulty obtaining traditional financing because it is based on your company’s sales rather than your credit history.

Working Capital Loans

Working capital loans are short-term loans that are used to finance everyday business expenses, such as rent, payroll, and inventory. Working capital loans are typically repaid within one year and can be renewed if necessary. This type of loan can be a good option for businesses with seasonal fluctuations in revenue or businesses that are just starting out and do not yet have a strong track record of profitability.

Commercial Mortgage Loans

Commercial mortgage loans are used to finance the purchase or refinancing of commercial real estate, such as office buildings, retail space, or industrial warehouses. Commercial mortgage loans typically have longer terms than other types of business loans—up to 30 years—and may be either fixed-rate or variable-rate. This type of loan is typically only used by established businesses with strong cash flow and credit histories.

Business Equipment Loans

Business equipment loans are used to finance the purchase of new or used equipment, such as vehicles, machinery, or office furniture. Business equipment loans typically have shorter terms than other types of business loans—up to five years—and may be either fixed-rate or variable-rate. This type of loan is typically only used by established businesses with strong cash flow and credit histories. 

There are many different types of business lending instruments available to companies today. The right choice for your business will depend on factors such as your credit history, cash flow, and desired loan amount and term length. We hope that this overview has provided you with some helpful information so that you can make the best decision for your business.

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