Business owners are always on the lookout for loans. These businesses could be start-ups or even the established ones who need loans for different purposes. Apart from the purpose for which the loan is required, another aspect that you need to keep in mind while selecting a loan is its interest rates and repayment period.

These loans can be accessed through a variety of sources but you need to know beforehand that what kind of loans are available to you and which one could possibly turn out to be the best for your needs.

Here, in this blog, we have mentioned a few loan types available to business owners and highlighted a few details like how they are structured by the lenders and their common variations.

Line-of-credit loans

For small business owners, the most useful type of loan is the line-of-credit loan. It is a short-term loan and works as a permanent agreement between the bank and the business owner as it covers a business in case of emergencies and frozen cash flow stream.

The intent behind availing this loan is mostly the purchase of inventory, working capital requirement, and business cycle needs. The method of funding is as such that an amount is transferred to the checking account of business to cover checks. An interest needs to be paid by the business on the amount that is sent as an advance from the time it is advanced till it is given back.

Mostly, these loans carry the lowest rate of interest and therefore, are viewed as a low-risk option.

Installment loans

These loans are generally written to cover any kind of business needs and there is no restriction over it. They are paid back as monthly installments that are equal and include both a portion of principal amount and the interest for the month.

Once a contract is signed for this loan you receive the amount in full and the interest charged is calculated on that day from that day to the day loan would be repaid completely. A penalty is never charged even on the prepayment of the loan from the day it ends.

Balloon loans

The characteristic that differentiates this loan type from other is that although the loan amount is given to the borrower in full once the contract is signed but the interest payments are only the one that is repaid during the life of the loan. The principal payment is what is due on the final day of the loan as one; hence the name ‘balloon’ payment.

These loans are suitable for those businesses that have to wait to receive payments from clients and customers. For running their operations smoothly they look for these types of loans where once they receive the payment they would repay the loan amount in full.

Interim loans

These loans are extended to contractors who are constructing and building new facilities. These loans are what bankers are always most concerned about regarding when and by whom would they be paid off and would the borrowers keep up with their commitment.

Usually, the interim loan is paid off through the mortgage that is received on the building.