Are you interested to start your business? Then your task will become easier with a business loan. There are several business loan schemes that are drafted to help entrepreneur in starting their business or expanding their existing business. These loans come at lucrative interest rates, and there are many banks which can readily provide you this loan, but before you apply for the same, you must know that the bank will ask certain questions that you need to answer.
What is a business loan?
It is a kind of unsecured loan where you don’t need collateral and it comes at a subsidized interest rate which the borrower has to repay over a period of time. There are different types of business loan provided by the banks. Some loans are taken for buying equipment, some are for financing the business, and there are others which aim at taking care of the operational cost.
What are the different types of business loan?Term loans- This is a common type of loan for startups. According to the terms and conditions one can take up to $1 million money from the bank. Pros:
The bank gives you upfront cash.
Faster and quicker finding as you will get money within a few weeks.Cons:
This loan may require collateral.Ideal for: Those businesses persons who are planning for expansion can opt for this loan. If you have good credit and want quick money, then this loan is for you. Business lines of credit- This loan is provided according to your credit limit. One has to pay interest on the amount that they draw. It is more flexible. Pros:
Money borrowing flexibility
Unsecured and there is no need for collateral.Cons:
Additional cost like draw fees are there
String credit scoreIdeal for:
Best for those who are looking for short-term financing
Seasonal business owners.Equipment loans- As evident from the name, this loan is used for purchasing the equipment. The term of the loan is matched to the life span of equipment, and in this loan, the equipment serves as collateral. Pros:
You can buy new equipment using this machine
Available at competitive interest ratesCons:
Down payment may be required
Sometimes the equipment may become outdatedIdeal for
The ones who have a strong credit score
Borrowers who need to use the equipment right away.Personal loans – This is a common type of loan which can be used to meet emergency financial needs. One can take a personal loan for business expansion. This loan is available easily, and instant money transfer makes it popular, but it comes at a high-interest rate. Pros:
Good for startups
Faster fundingCons:
Higher borrowing cost
Higher interest rate
One can only get up to $50,000
Non-repayment may affect the credit score badly.Ideal for:
Startups and entrepreneur who have a high credit scoreMicroloans- These are small loans and are offered by non-profit organizations and mission-based lenders. They are good for startups and new business owners. Pros:
Lower cost
The lending institution may offer consultation and business trainingCons:
Lesser loan amount
Stringent eligibility parametersIdeal for:
New business owners
Businesses that need a small amount These are some of the popular business loans options available to the money lenders. Some of the loans come at a higher interest rate while others are available at a lesser rate. Before choosing one, its important to do a comparative analysis of the interest rates and terms and conditions of the loan provider. Take time to do the analysis, and based on it, you can choose the lender who can help you to make your business profitable.
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