Before anybody considers taking out a business loan it’s important to understand what they are signing up for, it has been known that loans have been granted in the past without the borrower fully understanding what they’ve signed up for. Most people don’t know all the facts, and there has never been a better time to brush up on your knowledge, a loan might be just the thing that’s needed in order to move your business forward in the current climate;
How do Business loans work?
There are different policies available as you’d imagine, and they’ll all be packaged slightly differently, typically, though, there are two types of business loans. A ‘secure – backed loan’ and a ‘non-secured, un-backed loan’, they work properly when you pay back the money you borrowed from somewhere like Ascot Bridging Finance, when agreed. The policy you take out will largely depend on what kind of business you have, and how good your credit score is.
If you are a sole trader, for example, then you may have to put down what’s called some ‘collateral’, or be able to demonstrate to the lender that you have enough funds, or assets that can be used to pay off the loan should you want to end the agreement early, or are unable to pay your monthly payments, it happens. Normally, the interest rates or, (APR) are higher and, you may even need to make a down payment.
A ‘non-secured loan’ means that you still get your loan, and the same level of customer service, but with the added benefit of not having to sign any assets over, or meet the same requirements as a ‘secure loan’. It could be that you have a Limited Liability Company, which protects your personal assets, or you’ve got a better credit rating. There will be other contributing factors, generally, speaking though these loans are normally offered to people who are in a lower risk bracket, in the lender’s eyes.
Reasons to consider applying for a business loan
First of all, it’s important that the applicant understands their various options. There might be more affordable ways to get the funds needed, always speak with an independent expert first, then you can make your decision. Here are some typical reasons people take out business loans, and a few things to discuss with the lenders;
- Unable to get a low interest credit card, some loans make more financial sense than a credit card anyhow, so you’ll want to look at both, side by side.
- Perhaps, the credit limit assigned to your current cards isn’t enough, you ‘could’ take out a loan to pay off the existing cards, and have some left over with lower monthly payments. On the other hand, your payments might be more expensive each month, but easier to manage if you only have the one outgoing.
- Going for a business loan is the cheapest option for you
This might sound obvious, for some though, it’s not an easy task to get right, and you should have a checklist anyway.