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Business banking: Common types of loans

Small Business BasicsThere are two basic kinds of loans available, short-term and long-term.

Short-term loans generally reach maturity in one year or less and can carry you through the doldrum months in a seasonal business. These include lines of credit, working capital loans and accounts-receivable loans.

Long-term loans usually mature in one to seven years, but can be longer for real estate or equipment. These loans are used for major business expenses such as vehicles, purchasing facilities, construction and furnishings. They also can be used to carry a business through a depressed cycle.

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Common loans that banks will offer to startup and small businesses are:

  • Working capital lines of credit -- Used for day-to-day operations. Credit line offers are usually short-term, about 90 days, but can go up to several years with regular annual reviews. Interest rates are variable.

  • Credit cards -- A revolving credit card can be a good cash management tool.

  • Equipment leasing -- Banks usually require a history of operations before lending money for leasing, or leasing through a subsidiary company of the bank.

  • Letters of credit -- The bank acts as an intermediary, promising to pay the seller if all conditions are met. Important for reducing risk for a business practicing international trade.


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