Some Popular SME Loan Types

When it comes to financing operations and growth, the small-to-medium enterprise has several options to choose from.

Each option offers several pros and cons, and some of the most popular methods are listed below.

Business Loans

Business loans are offered as a lump-sum loan with repayments that are made on the principal and interest at specified periods.

While the terms of an installment loan are typically negotiable, these loans are typically utilized by businesses which have predictable cash flow and stable revenue patterns.

Equipment Financing

For businesses operating in capital-intensive industries that require significant equipment costs to generate revenue, many financial institutions offer equipment financing.

This type of financing is typically secured by the equipment itself, and many manufacturing companies use equipment financing when they are investing in new production machinery and methods.

Company Credit Line

Lines of credit are a popular form of financing for businesses of all sizes, and the a credit line can be a convenient and flexible way to finance operations.

Typically, the amount of credit offered is a percentage of projected or historical revenue figures, and a line of credit can offer more attractive interest rates than other types of loans.

A business is only borrowing what's required in the moment and not a large sum which is gradually repaid.

Merchant Loans

A merchant loan is a type of cash advance in which the financial institution providing the loan provides a business with a cash infusion for the right to receive a portion of the company's future income.

In other words, merchant loans are secured by the company's future cash flows. Companies that are expecting an influx of sales at some pre-determined point in the future often use merchant loans.

For example, a seasonal retail business may use a merchant loan to finance an extensive cash outlay that is used to prepare for the holiday season.

Invoice Factoring

When a business has accounts receivable that will shortly be turned in to cash, they may turn to invoice factoring for short-term financing.

In an invoice factoring agreement, a financial institution lends money that is secured by the collection of current accounts receivable.

Effectively the business is able to obtain cash just after invoices are raised, rather than waiting 30 days, 60 days or even more in some cases.

Property Loans

Property loans can be an effective form of financing for a business that already owns real estate or other hard assets.

Property loans are a form of asset-based lending, as the funds provided are secured by office buildings, land, or other real property.

Businesses with a significant amount of fixed assets may choose to use these types of loans.

Peer-To-Peer Lending

Peer-to-peer lending is not a new concept, but the internet has made this type of loan much more accessible to businesses around the world.

Peer-to-peer lending is typically a private arrangement between two parties, and these loans can either be secured or unsecured. Several crowdfunding platforms, for example, offer a chance for businesses to access peer-to-peer lending.

Interest rates are generally determined by the free market, and these loans are less regulated than other forms of financing in most countries.