commercial loan

Fueling Ambition: The Comprehensive Guide to Different Types of Business Loans

April 15, 2024

You’ll need heaps of different traits and resources if you want to succeed in the business world. Passion, solid goals and a strong work ethic can all help you grow your company, but there’s one thing that everyone needs to really get their dream started: funds. One way you can secure the funds you need early on is through business loans.

Whenever you’re doing anything with money, it’s vital that you know exactly what you’re getting into. With a multitude of loan options available, understanding the types of loans is crucial for making informed decisions that meet your needs and align with your goals.

No worries; our friendly team of lending specialists here at Spinach are here to help. We know that every business is different, and we specialise in helping owners find the best choices for their specific circumstances. 

Understanding The Different Types Of Business Loans Available

Not all financial situations or business goals are the same, so it’s vital that you find a loan with terms that are ideal for your circumstances. Plenty of different types of loans are available, and if you choose the wrong kind, you might not get your desired results.

Before you apply for any loan, it’s important to take the right steps to understand your opportunities. For instance, you could use our easy-to-use business loan calculator to get an idea of what your loan could be like.

Here are a few of the kinds of loans we deal with at Spinach, and what you should know about them:

Working Capital Loans. A working capital loan serves as a lifeline for businesses by providing a lump sum of funds to maintain day-to-day operations and manage cash flow fluctuations. These loans are designed to bridge the gap between outgoing and incoming payments, ensuring that businesses can cover expenses such as payroll, inventory and overhead costs. If you’re unable to cover these costs, you may not be able to continue your operations, so this loan can really help you keep things running smoothly.

Working capital business loans may take the form of a line of credit or an overdraft facility, offering flexibility and convenience in accessing funds as needed. It’s important to borrow no more than 5 or 10% of your turnover to avoid excessive debt and ensure affordability. If you borrow more than that amount, you may have trouble repaying it, and it will be much more expensive. While it may be tempting to borrow more now so you have more money to work with, doing so can cause you trouble down the track.

Asset Finance. Asset finance is a type of loan that’s meant to help companies get the business assets they need to continue, change or grow their operations. These business assets can refer to company vehicles, equipment, machinery and more. Whether you’re interested in upgrading the assets you already own or you want to expand your fleet of vehicles, asset finance could be the right solution for you.

These loans are secured against the assets you buy, so you should be able to get good loan terms and rates when you choose this type of business loan.

Secured And Unsecured Business Loans. Naturally, all loans require a personal guarantee from the person getting the loan that they’ll pay it back. However, these loans can be either secured or unsecured, and it’s important to understand the difference between these two before you apply for any loan:

  • Secured Loans. These loans are secured against your property or business assets, such as your vehicles or equipment. This allows lenders to offer longer terms, lower interest rates and larger loan amounts, because these loans are less risky to the lenders themselves.
  • Unsecured Loans. Conversely, unsecured loans aren’t secured against any property or business assets. Instead, these loans come with only a personal guarantee from the one borrowing the money. These loans are riskier for the lender, so they may offer shorter terms and higher interest rates.

Bridging Loans. As its name implies, these business loans are meant to ‘bridge the gap’ in your finances. These serve as temporary financing solutions to help you complete purchases or transactions. It’s common for people to use these loans when purchasing or upgrading a new asset while waiting for another one to sell or be repaired.

Term Loans. Unlike working capital loans, where you get a lump sum of money and can repay it when needed, term loans give you a lump sum of money but you have to repay it incrementally over the loan’s term, like how you would with a home mortgage or a car loan. 

Getting The Right Funding For Your New Zealand Business

Business loans are a fantastic opportunity for any kind of business, regardless of whether you’re starting your first business venture or you’re growing your existing company. Of course, every smart business person knows you should think through any big business moves, which is why we at Spinach are here to help.

Do you need a small business loan to boost your business? Then come and see how our lending specialists can help you. To get started, you can call us on 0800 774 622.

Give your business a healthy financial boost with Spinach!