Starting a business, growing a business, and expanding a business each come with different financial challenges. When you launch a new restaurant, funding may be required for everything from building the space to leasing equipment to paying staff before the first sale is made. Growing that same business might mean you need access to additional financing, and launching new locations requires an entirely different strategy. Finding the right business loans requires you to understand the different use cases that you can easily use the funding for. Let's take a look at different types of business loans and the best reasons to use each of them.

Revenue Advance Loans

Many companies have variable cash flow, but need to pay for consistent staff, facilities, and equipment each month. But because the revenue is inconsistent, getting a traditional term loan isn't always the best option. Instead, using revenue based business loans give companies the option to get lending that can be paid back as a percentage of future sales instead of a consistent monthly payment. This offers these enterprises the opportunity to make bigger payments when their revenue is more, and to make smaller payments when they have less revenue coming in.

Restaurants, retail, and even accounting firms can benefit from this type of loan. Being able to purchase inventory in advance of high sales seasons benefits the retail sector, for example. The loan offers retailers the option to buy a lot of inventory, and then pay it back as sales pick up.

Hard Money Loans

Hard money loans are often used in the real estate market. Investors use these short term loans to purchase properties that they can then turn around and resell after making repairs. The loan is backed by the value of the property, instead of the credit worthiness of the investor or company that's doing the investing.

These loans often come with much higher interest rates and shorter term lengths than other commercial loans. This means that the investor often needs to resell the property or refinance it into a different loan type within a year of purchase. This gives them time to make updates or ride out a market where they can turn a profit down the line.

Term Loans

Traditional term loans are what most people would think of when they consider lending. Borrowers take out a specific amount of money in one lump sum and then have to pay back the same amount each month for a set number of months. In business, term loans are often used for startup costs, to lease a space or pay for marketing.  

Some other reasons to use a term loan include starting up a restaurant, purchasing inventory in bulk, opening a franchise, or even investing in new technology for an existing business. When your company is looking at lending options, term loans offer distinct advantages. One of the reasons businesses like term loans is that the interest rates are lower. Plus they can also be used to help stabilize cash flow during tight seasons.

Micro Loan Program

These types of smaller loans are often distributed by community based organizations versus being given out by a bank. The funding on a micro loan is capped at a much lower amount than getting a traditional SBA type of loan. Some organizations may limit the loan to up to $5,000 or $50,000, depending on the program.

Some of the best uses for a micro loan include doing a home-based startup, buying supplies, or even as working capital. Micro loans often limit borrowers on what they can do with the loan. While some business loan types allow you to pay off existing business debts, most micro loans do not. These have to be used for things like current and future operational needs and tangible pieces of equipment.

Personal Loans for Business

One way that some new entrepreneurs fund their ideas is to take out personal loans. They are often an easy way to get lending for a new business idea, especially when the borrower has good credit and a source of income to cover payments while they are getting off the ground.

These can be good for businesses that don't require a lot of capital up front, or if they are using the funds to purchase a hard asset that could later be sold to cover the loan amount. However, this one is risky because it puts the business owner personally on the line for the debt. This can be problematic if the business doesn't go as planned.