The age that we live in is very entrepreneur friendly and is considered as the age of startups. With support and aid from governmental and private institutions, it is no longer a daunting task for business aspirants to raise debts. With incubators and accelerators in place to offer aid in mentor-ship and business expansion, it is no longer a daunting task to break even, clear debts, and skyrocket into profits. With thousands of startups and small and micro enterprises raising capital through public and private institutions, the options are more flexible and are oriented to help the applicant go through the journey with maximum ease.
Mostly applied for by entrepreneurs and business aspirants, these are for starting a company or for raising working capital or for business expansion or for purchasing new machinery/technology. While these are the broadly categorized buckets, any needs for additional capital are provided to as long as the necessity of instant additional funding is justified.
Types of business loans:
When you are out in the market looking to get the loan that best fits your needs, a thorough research on the types of loans available and the paperwork they come with falls in the preliminary things to do. In this competitive market, there are a plethora of lending institutions that will offer you the funds you looking to raise. That said, walking into a discussion with them without doing some back-end research could turn out to be overwhelming. To help you get the foundation right, this paper will touch-base the different kinds of loans available and the steps involved in picking the one that’s the right fit for you.
Secured business loan: As the name suggests, these kinds of loans are available from lending institutions when the applicant is willing to offer residential, commercial, or industrial property as collateral. Apart from Gold, stocks, and Bonds are also accepted as collateral by lenders. These loans are generally for longer intervals and are available at a lesser rate of interest due to the absence of risk. If you are willing to offer a collateral for raising those immediate funds, this is an apt solution for your business. Else, you could always choose for unsecured business loans.
Unsecured business loans:
To explain in layman terms, unsecured business loans are like personal loans for individuals. Like personal loans, these are easy to apply, swift disbursement, and come with a higher rate of interest as they do not require any sort of collateral from the applicant.
Credit cards, Payday loans, Line of Credit, Cash Advance, Signature loans, Peer to Peer loans, Student loans, Small business loans, Business loans with guarantor, and Term loans are the few types of unsecured business loans that are available for applicants to choose from. Please note, except Peer-to-Peer loans, all the other kinds are offered by private and public institutions. Running a thorough research on these across various competitors is a good practice.
Off the lot, Line of Credit, Credit cards, Signature loans, term loans, small business loans are the kinds we will be talking about to realize if they are the best fit for your business.
Line of Credit:
This is a prominent unsecured business loan entrepreneurs opt for, as it offers them the flexibility to choose from a pool of funds and pay interest levied on the funds withdrawn. This is a good fit if you are looking to back your working capital with this as emergency funds. Also, with LOC (Line of Credit) the applicant will not have to offer collateral depending on his/her credit score and relationship with the lending institution.
In this model, the user can also choose to alter the payment method depending on the cash inflow, thus making it flexible.
Term loans mostly fall under secured business loans but in certain circumstances can be offered as unsecured business loans depending on the credit score of the applicant, amount of capital requested, current banking structure and nature of the relationship with the lender. With term loans, the rate of interest could either be fixed or be floating in nature, depending on the terms agreed upon by the applicant and the lender. These come with a fixed maturity date and can either be repaid in weekly, monthly or quarterly instalments. The tenure for these loans range between 1 to 25 years and are apt if you are looking to build the business from scratch or are looking to expand the current business module.
Breaking down the nomenclature, this form of unsecured business loans are granted by taking just the signature of the applicant as the collateral. These types of unsecured business loans often offer a lesser rate of interests when compared to credit cards and are opted in the case of medical emergencies, to tackle unexpected expenses or for vacations. Studies have proven that these kinds of loans are the preferred method when the need arises to close another lending with a higher rate of interest.
Signature loans can offer your business that sudden funding to tackle unforeseen expenses or implement measures to accommodate sudden business expansion opportunities.
Small Business Loans:
Small Business loans have more than often been seen as a secured business loan but there are many tips that can help you get this as an unsecured business loan. While we will not dive deep into what those tips are in this paper, information on these kinds of loans will be shared. Small Business loans are available to applicants with an excellent credit score with a consistent lack of defaulting. These loans come with a varied or fixed rate of interest and when undertaken in an unsecured business loan can be obtained from Peer to Peer lender, private lending institutions, and cash advances.
These are the various kinds of unsecured business loans you could choose from as an applicant if you are looking to raise funds without offering any property as collateral. Hope this article has helped you zero-in on the type of loan that is the best fit for your business. If you there are queries you’d like our team to answer, feel free to get in touch with us here.