There are many different types of business loans. They vary based on term, loan amount and what the funds are used for. However, one key difference between many business loans is if they are secured or not.
With all loans, the lender always has an exit strategy. This is a strategy they have in place so that they can recover the majority of the funds, in the event of a borrower defaulting.
If you’re conscious of interest rates, the way a loan is secured is a significant factor in the rate. For Unsecured Business Loans, they vary based on variables like Turnover, Time Trading and Your Financial History.
For Secured Business Loans, different lenders have different risk appetites. Some lenders may only lend up to a certain value of a property’s net value. For example, if a lender can lend up to 60% of the property’s net value and you have a property worth $1,000,000 (owned outright), then you can borrow $600,000.
Now, some loans may be secured against assets like cars, trucks etc. Others may be secured (in most cases) against real estate that you own. However, there is also Unsecured which is of higher risk to the lender, but provides a great option for business owners as they can utilise their businesses cashflow to prove the ability to pay back the loan.
There are a large variety of business loans available, some will have assist some businesses more than others. One key thing to always ask yourself is what you are looking to use the funds for and what benefit it will have.
A large majority of people just think about the loan amount and the interest rate, which is only one small piece of the pie. Knowing what type of loan (Unsecured or Secured) to get is key to letting a business loan have positive impact for your business.