The Benefits of Installment Loans for Small Business Owners

When you’re ready to take your business to the next level, weighing your options carefully is crucial. The type of financing you choose will impact your use and could make the difference between success and failure.

Access to Working Capital

Installment loans provide business owners access to a lump sum of funds they must repay in fixed payments over a set period, with interest. This type of financing is commonly used to fund things like purchasing equipment, hiring new staff, investing in marketing and expansion, or bridging cash flow gaps due to seasonality.

However, other funding options, such as a line of credit, can offer business owners more flexibility regarding how they use their funds. This type of financing works similarly to a credit card and gives businesses access to an approved limit to which they can borrow funds.

Tax-Deductible Funds

As a small business owner, you have many business financing options. Some of these are installment loans, which provide a lump sum you pay back on a fixed schedule. Others are revolving lines of credit, which allow you to borrow funds repeatedly. With both of these types of financing, you can use the money to make one-time purchases or to cover cash flow fluctuations. However, it’s important to understand the costs of each type of financing so you can choose the best option for your business needs.

According to MaxLend, both revolving lines of credit and installment loans have interest rates calculated using various factors, including your company’s revenue, how long you’ve been in business, and your credit score. In addition, both business lines of credit and installment loans require you to put up your company’s assets as collateral if you cannot repay the loan.

Predictable Payments

Offering retail installment loans enables shoppers to bring home the products and services they want without breaking the bank. This type of consumer financing can generate repeat business because it provides an alternative to paying with cash and allows your shoppers to cover expenses they couldn’t afford. In contrast to revolving lines of credit, installment loans provide predictable monthly payments with fees and interest wrapped into the total amount they owe. This makes it easier for your small business to budget loan expenses and avoid late payment penalties. In addition, installment loans such as in MaxLend loans often offer larger borrowing amounts than revolving lines of credit. However, these loans can also have steeper qualifications and a lengthy application process.

Flexibility

Many installment loan types allow for a fixed monthly payment over a defined repayment period. That can be preferable for business owners who have difficulty budgeting for debt payments on an ongoing basis or find it challenging to mark down revolving credit line amounts in their spreadsheets.

Offering financing options like installment loans helps your company reach shoppers who might otherwise avoid big-ticket items because they can’t afford to pay cash. As such, you can serve a more diverse group of customers and increase sales. However, you should know that some installment loans require you to put up collateral in case you can’t repay your debts. Also, some lenders impose prepayment penalties if you pay off your loan early. That makes it essential to use these funds wisely when applying for them.