Running a business or starting a company requires a lot of financial backing in order to provide you room to grow and stability to operate. The problem is, not everyone has the funding to simply start their own company. This is where borrowing comes into the picture and plays a significant role in starting up a business. But before you walk into your bank asking for a loan, take some time to consider a few key points about business loans.
Important Terms When Dealing With Loans
When considering business loans, you have to be familiar with the basics before you begin to understand what the different options are. Even if you are aware of all the terminology, here are a few terms to refresh you.
Loan rates refer to the percentage taken on the total amount of money you have borrowed. These will be the amount you have to repay in addition to the full amount of the loan.
A term refers to the length of your loan, and how much time you have to repay it. Exceeding this length of time can result in various penalties, such as increased interest rates, loss of collateral, or even legal penalties.
Some loans allow you to pay them back in installments, where you can break up your total payments into easier to manage amounts instead of repaying in one large lump sum.
Fixed Rates And Payments
Fixed rates or fixed payments refers to the amount of your interest or your payments not changing. Some loans may increase over time with interest.
When applying for a loan, you may have to put down collateral. This refers to something that holds value, such as your home, car, or stocks, and if you are unable to meet the term requirements and complete your payments, you will end up forfeiting your collateral.
Understand The Different Loan Options
There are many borrowing options available to you and your business, varying from place to place, and differing depending on each financial institution or lender. It is in your best interest to compare the different options you have and what each lender can offer you.
Cash Flow Loan
This is a good option to consider if you are already running a business, and are generating a consistent income. These loans are easier to get as you have evidence of income and financial stability to be able to pay back your loans. These are typically easier to get in terms of not requiring much paperwork. You don’t need to have a credit review, and often, don’t require to put down any collateral at all. You just need to provide statements of your revenue and business. However, at the same time, these loans are not as easy to attain, especially from newer companies and fresher businesses, as the money you tend to generate often does not meet the requirements.
Unsecured financing or loans are another option to consider for your business. Financial experts from https://www.lendingbee.com.sg/business-loans/ recognize these types of loans to be more common and popular with businesses as they are relatively fast to get, and simple to apply for. They rely on your credit history so it will still take longer than some other options to get approved for this type of loan. However, this is an option to consider early on if your business is not operating with substantial revenue. This is useful for many startups, especially during the growth period where operating in the negative is common. The introductory rates will vary upon evaluation, so it is important to communicate with your financial institution to understand all the legalities before entering into any contracts.
Accounts Receivable Financing
This is another option to consider for many early small to midsize businesses. What AR financing is, is it takes into account your clients and the money that you are being owed and provides you that money immediately. Of course, most institutions will only give you a portion of that money, 80% for example is considered a good percentage, due to the volatility of the market and business early on in a company’s life. These loans, however, can be significant in allowing you to grow without having to wait around for clients and customers to pay you fully and can be utilized to expand your company early on.
There are many different loan options to consider when applying for a business loan. Of course, each business will vary in terms of the status and loan needs, so it is best to consult a financial advisor and institution to evaluate your company and what is the best option for you.