Being able to run a business takes a considerable amount of money. The famous saying goes something like “In order to make money, you have to spend money”. This is fine, most people are more than happy to make an investment into their own company, but where do you get this money from? After all, the money tree is yet to be discovered of course. One of the ways to help your business get off the ground is to opt for a business loan. This is incredibly useful to either get your business off the ground, or help it to grow. There are many different types of business loans, so how do you decide which one is best for your specific type of business?
Business Loan Or Credit Cards?
Some businesses, particularly smaller ones, find it easier to opt for a credit card rather than a loan. A credit card is a very easy way to get credit for smaller amounts. It also offers more flexibility than a standard business loan, because once credit is paid off, it can be used again for other purposes. The downside of credit cards is that they generally have much higher interest rates. However, for larger businesses that require higher amounts of investment, a credit card is not an option as it is not sufficient to cover the expenses they have. Hence, these types of businesses would opt for a business loan instead.
Business Loans and Lines of Credit
A line of credit is like a stepping stone between business loans and a credit card. Depending on the business status you have, it is possible to apply for a line of credit. The benefit of a line of credit is that you don’t have to use the full amount in one go. The money can stay there untouched, at which point you also don’t have to pay any interest. Once you start using the money, you will only be charged for the amount that you have taken from your entire loan of credit. The interest rates of lines of credits are much lower than those of credit cards, although still higher than a conventional business loan. Very often, the interest rates are variable, just as with a credit card. Also, just as with a credit card, if you only pay the minimum amount each month, it will take you a long time to pay off your line of credit. One main difference between credit cards and lines of credit, however, is that you generally only have so many years to pay off your line of credit. With a line of credit, you will only have a set number of years to pay back the money.
There are different types of business loans. One of the most commonly found types is the working capital loan. These can be either secured or unsecured. The secured types of business loans can usually only be obtained by businesses that have a fantastic credit rating, an excellent business plan and a proven track record of being profitable. The secured type of business loan is easier to obtain. The collateral on which the loan is secured depends on the financial rating of the borrower. A second type of business loan is the Accounts Receivable Loan. This is quite a short term type of loan. A business will have to present details about their general income and expenditure, which will demonstrate how quick a company can pay the loan back. The interest rates are usually much higher, but you also pay them back much quicker. This means that you may pay a lot less money overall. Then, there are the business only loans. These put the capital and asset of a company down as collateral and don’t take into consideration the credit history of the business owner. These types of loans are generally only provided for those who have a very good record of receiving sufficient income and an excellent credit score.
How To Get A Business Loan
In order to make sure you stand the highest chance of securing a business loan, you need to prepare yourself appropriately. This means that you should already have an idea of what type of loan you will be requesting. Also make sure that you have a business plan to hand to give to the bank and that your credit rating is squeaky clean. If there are any blemishes on your credit record, make sure you have a valid explanation ready for these issues. Although decisions are usually made by a computerized system, lenders themselves are still human and do listen to people on a case by case basis. If you can prove that the blemishes on your record are caused by issues that are well and truly in the past, they may still consider your application.
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