The four most common types of short term or quick business loan are: term loans, asset financing, invoicing financing and lines of credit. Let’s explore each in more detail…
Term Loans
Term loans are for a fixed amount and need to be repaid within a fixed timeframe. They can either be secured (backed by an asset) or unsecured, depending on the loan provider and your business needs.
Asset financing
An asset finance loan is used to gain access to new or upgraded business equipment. However, rather than buying the goods upfront, a business will lease them for a pre-agreed length of time. This helps companies utilise machinery, vehicles, technology, or any other asset that they can’t afford in full right now.
Invoice financing
Invoice financing enables businesses to borrow money against outstanding accounts receivables (unpaid customer invoices). In this arrangement, the loan provider will agree to ‘buy’ the debts off you, giving you the cash upfront – when the invoice is eventually paid, so too is the loan (plus a small fee). Invoice financing is an umbrella term, covering invoice factoring and invoice discounting, which work similarly but with one key difference: in factoring, the invoice becomes the loan providers responsibility to chase up.
Business lines of credit
A line of credit is the most common type of borrowing mechanism for small businesses. Your lender gives you a maximum amount that you can spend, and if you don’t repay it within the specified timeframe, they’ll start charging you interest.