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Entrepreneurs often start out with small businesses with few employees which they slowly expand. This is mainly because of the limited availability of funds and an insufficient number of investors. Therefore, there may come a time when the entrepreneur needs to take out some loans to will help the business, whether it is struggling through a financial crunch or simply trying to branch out.
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which they slowly expand. This is mainly because of the limited
availability of funds and an insufficient number of investors.
Therefore, there may come a time when the entrepreneur needs to take
out some loans to will help the business, whether it is struggling through
a financial crunch or simply trying to branch out.
Nowadays, borrowing money for your business from a secure place is not
much of an issue due to the availability of many loan programs in the
business lending sector.
The only problem is that it is quite difficult to know which loan will
actually help your small business, in spite of there being a good amount
of cash that is readily accessible in every option.
which they should be used to get the best results.
Small Business Administration (SBA) Loans: SBA loans are the best ones you
can avail when you need funds to buy some material, equipment or even
create an inventory and manage it. These loans can be taken out through
your local bank, which will give them at a very low interest rate and they are
very secure as they are guaranteed by the federal agency at the time you
take it. However, it is rather difficult to actually qualify for a SBA loan. The
entire process is quite time consuming even though they have very flexible
terms because the application process is lengthy and you will only get the
loan if your business has been running for at least two years, and does not
have any pre existing loans or debts, with all other finances looking sound.
Letter of Credit: This is a rather uncommon type and is mostly seen in
cases of international businesses or trade, but a letter of credit is usually a
statement issued by a bank which guarantees that the buyer will pay the
full price of an article to the seller in a different country within a fixed
period of time. If the buyer cannot pay the full amount, then the bank will
cover the remaining costs. This lessens the county’s risks regarding the
importer as well as the commercial credit risks that the issuing bank might
have. A letter of credit is useful if you are not in a stable position to get
internal credit or are suffering from some form of unfavorable financial
Line of Credit (LOC): A LOC is sort of an arrangement or understanding
between a lending agency or a bank and you where both decide on a
maximum amount of loan which the bank will allow you to use. You will be
able to withdraw whatever amount you need as long as it does not exceed
the set limit and you will have to keep making minimum amounts of
payment certain intervals of time. A line of credit is extremely flexible
because you can borrow a certain amount and then use it accordingly to
accommodate your expenses. Moreover, depending on the amount you
spend from the total amount you have borrowed, the bank will charge
interest. This makes it very affordable and you can easily avoid difficult