Lenders do not offer these loans to just anyone. They take complete details of the credit status , assets, business experience, education level and the skills of the businessmen. These are required to assess the credit worthiness and the repayment capability of the applicants as well for the analysis of the risks associated with lending. Of the numerous options available in the financial markets today, getting a business loan is never going to be an easy task. However, if you have the knowledge of the different types of loans and the way these loans function you will definitely make decisions which are on the right track.
Table of Contents
Secured vs. Unsecured business loans
Business loans are basically categorized into two types- Secured and Unsecured loans. While secured loans are backed by an asset and the lenders often possess the right to sell the property if they do not get their loan repayment as per the agreed terms and conditions; unsecured loans are small loans offered for a short term, with no collateral and the risk being higher for the lenders, the rate of interest offered on these loans is generally very high and the repayment terms are also stiff. Credit card; loans and the merchant cash advances are some of the examples of the unsecured business loans.
Line of credit
When it comes to taking large business loans over a period of time it is not necessary that you would require all the money in one go. In several cases where the business is growing at a gradual pace and things are processed as per the plans, the business loans in the form of a line of credit can do wonders for you. Once you apply for these personal installment loans you will be approved the line of credit against collateral. The loan amount will be approved in a go and you will be allowed to take the loan amount in installments as per your need. The interest rates will be charged on the amount taken only and not on the remaining amounts approved for you. This way you will save a lot on the interest and also will divert any extra expenses moving your way and affecting your business.
Long-term vs. Short-term business loans
Business loans generally involve huge amount of money. These are often required to fuel the growth of startups or the ones which are in their growth phase. There are several expenses which can come your way which will never be accounted for in your plans. For the businessmen these loans are used to fund their requirements over a period of time which generally extends ranges from a few years to 20 years time horizon. The business output also takes a lot of time and it is after a few years that you can see the effect of the money invested in your business offer you the desired profits. It is therefore that the business loans are generally paid over an extended term.
While some loans which are required for the renovation , salaries and other such small requirements are generally taken for a short term and the borrowers pay them back within a period of one year only.
Subsidized vs. unsubsidized loans
There are certain loans which are offered by the government bodies. These loans are termed as the subsidized loans and are offered under certain circumstances and the companies need to fulfill the basic criteria for getting these loans approved for themselves. These are low interest loans and they come with a lot of flexibility often a great boon for the new businesses which are operating in an environment filled with uncertainty.
If for any reasons you do not qualify for the different loans mentioned above, you still have the options available in the form of merchant cash advances wherein the lenders agree to pay you a sum of money as a loan to be used for any purpose you wish and they generally take their repayments by means of percentage of your credit card sales.
Times have changed and the business loans which were considered to really tough in the past are now available without much hassles. Any business, at whatever stage of operations can get the business funding provided they have the right credentials if they are looking for competitive rates and slightly higher rates if they are having bad credit with them. But in no case, you will be denied a loan.