Different Types Of Business Loans
As you are focused on getting your small business up and running, finding a source of financing for your small business will be a concern. You need to be able to consider your options and to figure out what type of loan or grant will work and what you can afford. Getting your financial records in order is one of the best things that you can do as it will allow you to show a bank that you are organized but also that you are planning to put the money to good use and you have a strategy of how to repay the money you borrow.
Business loans often come with a lot of fine print! You have to read the loan terms carefully to really know what you are getting yourself into. Some limitations on small business loans may require you to front some of your own collateral, meaning the business could be tied to personal assets. You may also need to agree to a higher interest rate if the lender is seeing that you are a risk or just because they are not offering too many loans at the current time.
One of the best things that you can do for yourself is to take the time to establish a solid business plan. It shows lenders that you are organized and you have a method of how you will end up repaying the money that you are borrowing. A good business plan will include a number of things from financial records to marketing plans, which really help lenders to see that you are a low risk to them and you will be able to repay the money in a timely manner.
Having solid business credit can aid in getting a loan but for some small business owners, having separate business credit may not be available or easy to acquire right away. It is likely that you will have your personal credit and business credit mixed together for some time but you can separate it as you become a reliable borrower and start to build good relationships with your vendors and others.
So what are your borrowing options? They vary but here are some of the most common types of business loans to consider:
- Secured business loan. These loans are very common for small business owners as they provide you with options on getting higher loan amounts because you will use your personal assets to secure the loan like your home or larger property investments. It reduces the risk to the lender, which is why they like to offer secured business loans to new business owners.
- Unsecured loan. A loan like this will usually have a higher interest rate to deal with as the risk is back on the lender and not on the borrower. These loans are quite common as they come in credit card forms and other options. Having good business credit can aid in getting you the best interest rates and loan terms so try to work hard on establishing business credit.
- Start-up loan. This is also common for small business owners when you are first getting started. You will need to focus on having a good business plan to use as it helps the lenders to see that you are serious about your business and that you have a solid future with it. The one thing with start-up loans is that you have to work on building your credit up before as lenders usually take a look at your personal credit and borrowing history to help them determine if you will be a good borrower or not.