Types of Business Loans:
It’s the normal nature of business to utilized loans for a wide variety of purposes. For some
businesses the need may be for capital to expand services, purchase new equipment or hire additional employees. For
others, cash may be required to see the company through a temporary slowdown in business which can be seasonal or
due to a general economic downturn. When those needs arise, there are a couple of ways to go about acquiring the
additional funding. Two of the most usual avenues include secured business loans and unsecured business loans.
There are major differences in the two and a number of reasons why one type of loan might be a better choice than
Secured -vs- Unsecured:
Of the two basic loan types, secured loans are easier to get
because credit is not as much of a factor since the loan is secured with an asset of some kind. The asset or assets
used to provide the security can be any one or combination of things. Depending upon the lending institution you
are dealing with, suitable assets may include real property, inventory, equipment, accounts receivable and even
intellectual property or trademarks.
Credit Rating Is Not
Credit ratings for the business, as well as personal ratings for
this type of loan, are not nearly as much of a factor as with an unsecured loan. The unsecured variety will
normally require an excellent credit rating and a profitable business history backed up by tax returns and audited
financial statements. Additional requirements may include a formal business plan outlining how and when the loan
will be repaid. Even if you are able to meet all the requirements, unsecured loans carry higher interest rates and
less advantageous terms and conditions. It should come as no surprise that even large, financially strong,
companies often choose to go with a secured loan.
Business Loan - Rate
Shop for Rates:
With a secured loan you should do some interest rate shopping
before settling on a lender. Since the lenders are well protected in this type of loan and there little or no risk
involved for them, you will have a better chance of getting the best interest rate by having several lenders
compete for your business.
First Loan Application:
If you are new to the loan market, it may seem a bit daunting but
you'll get the hang of it very quickly. Most loan officers will be very helpful and walk you through all the
details. Since you'll have a pretty good idea of the value of the security they are asking you to put up as
collateral, the only thing to watch for is to not let the loan become over secured. Simply put; do not let a lender
take too much in property or assets as security. Not often, but sometimes they can get a bit over protective and
want to encumber more of your assets than is required to secure the loan.
Stay Cool & Calm:
Especially with your first loan, don’t be so anxious to get the
loan that you rush into a situation that is not in your best interest. It is a good practice to look for a loan
officer that is experienced enough to understand how your particular type of business works. In that way he/she can
help you by putting together a loan package that is beneficial for your business as well as secure for the lending