Comparing Business Loans Overview

Deciding which particular business loan is suitable for you can be confusing, so first you have to know which small loan fits your needs best. Each type of financing offers something different and the application requirements can be varied and testing, especially if you have a bad credit rating or have nothing that you can put up as collateral to secure your loan.

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Which Type of Small Loan?

Business loans come on many shapes and sizes and most lenders will offer a variety of financing options. You need to decide where you are in the development of your business and choose the appropriate loan. Some business loans that are commonly approved include:

A Secured or Unsecured Loan?

If you have something of value, like a house, land or vehicle that you can offer to back up your business loan, you can apply for a secured loan and enjoy the more favourable terms and rates that come with such financing. If you have nothing that you can put up to guarantee that your lender gets their money back (one way or another) you’ll have to apply for an unsecured loan and pay the higher interest rates and penalties and accept the harsher terms that it entails.

A Business Line of Credit

Having a business line of credit is rather like having a credit card specifically for the needs of your company. Basically, the loan lender gives their customer a credit limit that is the maximum amount that they can borrow. As the borrower needs funds, be it for new stock or to begin exporting, they can take money from their line of credit up to the credit limit – this is usually done either through a special debit card from the lender or in the form of a cheque.

If you get an unsecured line of credit, you can take as little or much out of the account (up to the credit limit) as you need, rather than having to take it all in a lump sum as with regular business loans. It also means that you can pay money back into the account and build up the funds available, should your company’s finances allow.

Another advantage is that you can enjoy substantial savings on your interest payments with a line of credit. This is because the borrower only pays interest on the money that they have actually taken out of the account at any given time, rather than paying for the total that is allowed. Obviously, this can make a huge difference if your alternative financing option is an unsecured loan where the interest rates are notoriously steep to cover the risk taken on by the lender.

Assessing Loan offers

Firstly, look at the interest rate – is it fixed or variable? Fixed rate loans offer the peace of mind of knowing exactly how much you will have to repay, but may come at a higher rate to start with. In contrast, variable rate loans might give you a low rate to begin with, but if the economic situation changes dramatically, you may find yourself paying considerably more by the end.

How long the loan runs for is another important factor to consider and it is generally dependent on how much money you are hoping to borrow.

Do you need collateral? You may find a fabulous business loan that gives you everything you need only to discover that you have to have collateral to secure it. Whether or not this is the case will depend of things like you credit rating, the current health of your business, how long it’s been running and the amount of money that you wish to borrow.