Business Financing Facts You Should Know
When applying for a start up business loan, you’ll need to carefully consider what type of loan will best match your needs. In this article, let’s talk about the basics about different business loans that are available in the market.
Different Types of Business Loans
Fixed-rate and Variable Rate Loans. The interest rate is one way to compare business loans. Some loans may have a fixed rate of interest which means the interest will remain “fixed” or the same from the beginning until the end of your repayment term.
Meanwhile, a variable-rate business loan is more unpredictable. Many variable-rate business loans start out with very low rates, much lower than fixed-rate loans. However, you need to understand that your interest rate will depend on the Prime Rate. Your rate can increase over the duration of your loan’s term as the Prime Rate increases. It is very important to understand the terms of your lender before signing up for the loan.
Secured and Unsecured Loans. A business loan can be secured or unsecured. Secured business loans require the submission of collateral. The collateral can be your personal property such as your home. It can also be one of your business assets. Since this type of business loan is guaranteed by the submitted collateral, it usually comes with lower interest rate and longer repayment period.
What about unsecured loans? Since they are unsecured, the borrower isn’t required to submit any form of collateral. Understandably, these loans have higher interest rates and lower limit than secured business loans.
Business Loans and Your Credit Score
Business Loans for Good Credit. Some lending companies are very strict and will only grant business loans to entrepreneurs with good to excellent credit history. If you have a high credit rating, you should have no problem getting approved for this type of business loan. Also, because of your credit status, you have a stronger negotiating power and you can use that to ask for better rates.
Bad Credit Business Loans. There are also lending companies that extend business loans for those with poor credit history. In this case, the business loan may have much higher interest rates to make up for the risk. Before submitting your business loan application, it is a good idea to check your credit report in advance to see which business loan you are eligible for. IF you find that your credit score is below par, you may consider working on improving your rating first before applying for a business loan. Thus, you can avail a business loan with a lower interest rate because of your good credit.
Irish Taylor is a bussiness loan consultant with Startup Business Loans and has been providing consumers and business owners with startup business financing since 1992. For years she has helped people with credit and loan problems especially pertaining to business start up, SBA loans and Unsecured loans.
Copyright 2008.
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