A business loan is typically used to purchase a fixed asset such as a piece of equipment, furniture/fixtures, vehicle, purchase of an existing business, purchase of a building for your business (see Real Estate loan section for more details), improvements for space and business debt consolidation. The loan is a fixed term and depending on the purpose of the loan, the interest rate could be fixed or variable. Traditional financing or SBA financing are a couple options of programs available that businesses can utilize.

A business line of credit is typically used for the purpose of working capital. For example, the need to hire employees, marketing, advertising, payment of accounts receivable is longer than expected, etc. This is a revolving line and therefore, the interest is usually variable, subject to change and fluctuate. Traditional financing or SBA financing are a couple options of programs available that businesses can utilize.

This type of financing is specifically for purchasing or leasing equipment for business use. For example, a dump truck for a construction company or an X-ray machine for a doctor’s office. Depending on a number of factors, a business may decide to purchase the equipment upfront and obtain an equipment loan or decide to lease the equipment. Obtaining a loan means a set period of time that the loan would be paid off, for example, 5 years at a fixed interest rate.

Equipment loans and leases are available through banks, equipment finance companies, directly through the vendor or manufacturer. Options are available but can vary.

Since there are different tax implications depending on which method of financing, consult with your tax professional on which option would be more ideal for your situation.

This form of financing is tied to a company’s accounts receivables. There are companies that specialize in this type of financing and can be considered a form of alternative lending. Typically, there is less documentation and a faster decision. There are different variables and requirements that a factoring firm would look for.

This form of financing has gained popularity as a form of financing for a business. Typically, the rates of interest are higher and obtaining financing involves less documentation with a faster decision than a traditional business loan or line of credit. Merchant cash advances have become an option for businesses who may have credit challenges such as negative credit reporting and unable to obtain traditional financing through a bank or lender, or are in a time constraint to access capital. Banks in general typically do not offer this type of financing as it can be often construed as a form of predatory lending due to the higher rates, however, there are some banks and more often, merchant processing companies that offer this as an added service. Be cautious about this type of lending and read any agreement carefully and seek professional advice.

The primary purpose for this type of financing is to purchase a building for business use, an existing building does not meet the business needs or one cannot be identified, this loan could also be used to purchase land and construct a building. There are additional requirements for construction financing due to the higher risk involved, but a real estate loan could be used for this purpose. Traditional financing or SBA financing are a couple options available that businesses can consider.

SBA also known as the U.S. Small Business Administration was created as part of the Small Business Act of 1953. There are numerous resources that SBA, www.sba.gov, provides and has available for businesses. Focusing on its financing programs, the SBA is a government guaranteed program that banks and lenders can provide for purposes such as purchasing commercial real estate for business use, partner buyouts, acquisition of an existing business, franchise financing or leasehold improvements to name a few. The SBA does not provide these loans directly, a business must obtain this financing through a direct lender such as a bank, non-bank lender and in some cases, a credit union.