Business banking: Common types of loans
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
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.
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