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Freedom First Credit Union

Everything You Need to Know About Business Loans

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Don't Apply for a Business Loan Without Doing Your Homework


Starting a business is not easy — everyone knows that. But what many entrepreneurs don't realize is just how difficult it can be to actually secure financing for their new venture. Even with a solid business plan, finding the right financing option and getting approved for the amount you need can be a daunting task.

Luckily, Inc.com pulled together a cheat sheet for business loans to take some of the mystery out of business lending. What's more, this is what they have to say about borrowing from a credit union:

"[Credit unions] are often very willing to work with small businesses, and tend to have higher approval rates than big banks."

Take a look at some business loan types below — the Freedom First Business Services Team is ready to answer your questions and find a product for you.

Freedom First provides a wide array of business loan products for working capital, equipment & vehicles, and even real estate.



Typical Business Loans on the Market

These are just some of the business loan products available on the market. Be sure to ask our Business Team about what we have to offer at Freedom First.

Business Line of Credit
  • Revolving capital (think credit card)
  • Access to cash & lower APRs
  • Build credit score with on-time payments
  • Pay interest on funds you draw
  • Can require collateral, higher interest rates, or frequent documentation
Term Loan
  • Lump sum payment paid back over fixed term
  • Need to already be in business a few years, have a good credit score, and meet the minimum revenue requirement
  • Lower monthly payments, longer payment terms
SBA Loan
  • SBA 7(a) Loan, SBA Express Loan, SBA 7(a) Advantage Loan, SBA CAPLines Credit (qualifications vary by product)
  • Long-term, low-interest rate small business loans partially guaranteed by the government
  • Lower down payments, longer repayment terms, competitive rates
  • Lengthy approval process, may require collateral
Merchant Cash Advance
  • Lump sum of capital that you repay with a portion of your daily credit card sales
  • Quick access to funding
  • You may still qualify with less than stellar credit
  • Daily payments can add up to be more expensive than other loan types
Invoice Financing
  • Get paid for your outstanding invoices right away for a fee
  • Must provide invoices, be in business for more than 3 months, and meet the minimum revenue requirement
  • Repayment upon receipt of funds from client 
  • Higher fees, especially if client repayment is delayed
Equipment Financing
  • Use equipment you're purchasing as collateral 
  • Borrow up to 100% of the equipment value
  • Repayment over the life of the equipment
  • Equipment may become obsolete before repayment complete
Source:  Inc.com

What are Working Capital Loans?

According to Fundera, "Working capital is the cash available to finance a company’s short-term operational needs, such as accounts payable, payroll, and other more immediate needs." So a working capital loan finances these everyday expenses.
 
A working capital loan can come in the form of a product such as a business line of credit, SBA loan, or merchant cash advance. Often, a working capital loan is a short-term loan a business needs to cover some operational expenses as they invest in a sustainability strategy.


What are Equipment Loans?

Equipment loans are loans secured by the equipment you are purchasing — in other words, your purchase itself becomes the loan collateral. Defaulting on an equipment loan will result in the equipment becoming repossessed by your lender.

Where more substantial business loans often require a company to be operating for a few years before they qualify, equipment loans are often available to startups and smaller, newer companies, since the loan is secured by collateral. These loans tend to be more straightforward, so they can be processed more quickly than other loans. 

Fundera outlined a wealth of information on equipment loans, including a checklist of what you should ask during the process. Be sure you know the loan terms around what happens if you default, whether additional collateral is required, and what the trade-in policy is.


What are Real Estate Loans?

There are a few different types of real estate loans for businesses. There are commercial real estate loans, which finance the purchase or renovation of real estate that's used for business. In other words, a retail store, office, or warehouse for your company. These loans are secured by liens on the commercial property you're purchasing, and they're mostly available to LLCs or S-corporations, not individuals.

You can also take out real estate loans to finance the purchase of investment property. If you want to pick up some rental houses for extra income or take on a flipping project, this product could help finance your endeavor. Bankrate encourages those in property investment to seek out real estate loans from credit unions because,
"[Credit unions] know the local market better and have more interest in investing locally."

 

Please note that this article is not a listing of Freedom First business loan products. To learn about our business loan types, terms, and rates, please contact our Business Team.

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