Types & How to apply for a Business Loan

This article tells you about Types & How to apply for a Business Loan. There are number of options available to get business loan e.g. government and private banks, financial institution etc. But the conditions and criteria to avail a business loan is a lot stricter as compared personal loan or a home loan. Different parties have their specific conditions and terms before they give a business loan to a party.

Types & How to apply for a Business Loan

Your professional image and reliability helps you to get a business loan, as it serves as an assurance that you would be able to pay back the amount of loan. Your bank statement records, earning and future potentials helps you to get a loan easily and cheaply. Your business references to give creditability to your professional reliability also help. At the same time your personal investment in your business also gives the lender a guarantee and confidence in you.

Now a day’s websites are used by most of the financial companies to provide you all the financial companies to provide you all the relevant information about the procedures, terms, conditions and benefits provided to the end users. Business loans are very handy in case of any financial losses suffered by a company or if you want to expand your business to new territories.

As mentioned earlier your credit history is of prime importance to get you a business loan. With a positive credit history you can easily get a substantial sum of money and help grow your business. Apart from this there are other lenders who provide unsecured loans at a nominal rate to the parties with bad credit history. All you need to do is bit of research on the net.

Availing an unsecured loan requires submitting the details of a business like type of business, twelve-monthly sales, figure of workers, span and occasion of business and ownership. These can now be submitted through internet as most lenders provide online service to make it convenient of the borrower-clients. In case of a start up business, the business proponent has to submit the business plan. The lenders assess the business plan to predict its growth and feasibility. Thus a well prepared business plan can fetch a very good deal.

Management and availability of fund is the key element for smooth functioning of any kind of business. Unsecured loans offer minimum risk. Another option for acquiring short term funding is through a business cash advance. While it is difficult to obtain a business loan, business cash advance offer easy funding, even to people with relatively low credit score. For businesses requiring immediate funding; be it for working capital or for any purpose, business cash advance is the best solution.

The principal qualifying criteria for acquiring a business cash advance is that the business has to be a credit card accepting firm and that it has to be in business for more than 2 years. A business cash advance is similar to a factor company except for the fact that it uses future credit card receivables instead of business-to-business receivables.

Smalls business loans offer money in two forms:

  • Secured loans and
  • Unsecured loans

In case of unsecured loans, no collateral is offered. For businesses with good credit history, getting an unsecured loan is easier. People who do not have collateral or do not wish to put their assets at a stake go for unsecured loans. Though the amount of loan that can be sanctioned under this heading is smaller as compared to secured, but the approvals are quicker, thus making it the best way to support immediate expenses. Since there is no collateral which ensures recovery, the interest rate charged in case of an unsecured loan is slightly higher.

Secured loans can fetch a higher loan amount since an asset is kept as collateral. But the approval takes comparatively longer time because it involves the valuation of the collateral. These loans are easily available to borrowers with a bad credit history or poor credit score.

However by a smart market research, one can find an unsecured loan at a lower interest rate from numerous online lenders in the market. These private online loan lenders offer much flexible services as compared to banks and financial institutions.

Unsecured business loans can be used for any personal purpose including buying of commercial properties, i.e. real estate or office space, arranging furniture, equipments and computers for the office staff, buying machines and equipments, as working capital, paying off debts of the business, buying vehicles for commercial transportation or can be any other purpose.

Fees & Interest Rate for a Business Loan

Depending upon the various factors of a business; like the nature of business, income of the business, past credit records; both of the business and the owner, the rates of interest and fees for a business loan can vary. Factors like whether the loan is guaranteed by any agency; government or private and whether the loan is taken against any security or is unsecured also affects the rate of interest and fees.

Interest rates are controlled by usury laws. A lender can charge interest rate within the limits prescribed under usury laws. A lender can safely charge rate of interest of 10 % pa without violating the usury laws. The usury laws are separate for personal lenders and for those protected by the Government like commercial banks, credit unions, savings and loans.

Usually commercial banks offer fixed interest rates, but depending upon the policies of the bank, and the loan repayment track of the business, the banks may also allow some flexibility in the interest rates. Small businesses meeting certain criteria can go for Government loans. Other agencies and specially funded business loans offer also offer lower interest rates. The interest rate is decided by a committee and these loans are offered only to certain businesses qualifying their criteria.

Different institutions charge different fees, starting with application fees and ending with closing costs. The amount of fees may vary from case to case and also on the amount of loan. However some institutions do not charge the admission fees. The closing costs are a fraction of the original amount.

Other fees that a business may encounter in the loan acquiring process are appraisal fees, attorney fees and environmental assessments. It is advised to ask the financial institution whether the other fees are included in the final closing fees or not, because if they are not; they may mount up to a sizeable amount. The fees for Government loans are based upon the size of the project.

To run continuously, a business requires money. The goal of a business is to maximize its profits. Since a business loan involves higher rate of interest and fees, some individuals choose to refinance their homes in order to meet the financial requirements of the business. The rate on interest and fees for a housing loan is comparatively cheaper. However, there is a risk in such kind of financing.

Incase the business is not able to repay the loan; the financial institution shall sell the home to recover the debt. Thus it is advisable to go for unsecured business loans. These may though have higher interest rates, but these definitely save you from risking your asset. As it is evident from the above, grant of a business loan depends highly on the efficiency of the project. Thus getting the loan sanctioned is actually in the hands of the business owner. The more efficient the project, the easier it is to acquire the loan.

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