When searching for an appropriate business loan, it is essential that you find a loan appropriate for your individual requirements. A business loan allows a lender to temporarily loan you some money so you can pay for things like property or tooling. From time to time, there are costs associated with loans such as completion fees or arrangement fees, depending on your lender. Loans can come from many different places, so you should always try and compare many different lenders to find the best deal. The different types of business loan available are as follows:
Short Term Loans
There are many short term business loans available. These can come in many different forms, under different titles, and you may well have seen many cheap payday loans advertised online. When it comes to your business, a short term business loan is simply a quick cash injection, helping you launch your business to its next stage. This can be used for things such as hiring new employees or purchasing new business supplies. Instead of making years of repayments, short term loans allow you to pay back the money quicker, from 1 month, to 2 years.
Long Term Loans
A long term loan is paid back over many years, as little as 3, or as many as 20. This can give you the opportunity to make lower repayments and can help you in regard to keeping your cash flow consistent. If you have a fixed rate loan, these types of payments won’t change over the entire length of your contract. You can usually get loan term loans from most banks and alternative financial providers, while peer-to-peer platforms often encourage shorter-term loans to provide a quicker return for investors.
Fixed Rate Vs Variable Rate Loans
To generalise, a fixed rate loan means that your monthly repayments will be set for a specific term, usually the length of the contract, whether it’s 2 years, or 20.
In contrast, a variable rate loan means that your repayments would fluctuate, depending on the market rate. This can mean that you have the ability to save on repayments, although it might be difficult to budget when you are unsure what the costs will be!
For this reason, fixed rate loans are often the more popular choice, as it’s clear what repayments you should expect.
A secured loan is when you take out a business loan and utilise your business assets, if you were not to keep up with repayments. A bank or lender can take your property if this is to happen, which makes this kind of loan not always the best for many businesses. You can usually only borrow up to 10 years, and there may well be upfront costs, such as administration fees.
The positive with a secured loan is that you are often able to borrow a much higher amount of money, plus your repayments may well be lower, as well as the fact that they are better for those with poor credit history.
Unlike a secured loan, unsecured loans are a type of loan which you do not need to secure. What this means, is that no security, such as property or your home, is required as equity if you are unable to make payments. Because of this, you are usually only able to borrow a smaller amount of money, with a much shorter repayment period. This is done to lower the level of risk for the lender.