A business loan is not only one of the most popular financing options, but also one of the most misunderstood. By reading this article you will learn exactly what it is for business, what are the requirements for it and whether it is really the right solution for your startup.
As an entrepreneur, you will often have to face financial challenges. They can be either unexpected payments or in the form of planned updates for your company. In both cases, you may find yourself in a situation where you want to apply for a business loan. A survey conducted in 2017 shows that although entrepreneurs have several business financing solutions at their disposal, most still choose personal loans when they need a quick financial recovery. Only 9% of business owners who responded to the survey decided on a business loan.
How is it working?
This credit option works like a normal credit card. You have a certain amount of money that you can use in any way you like. It is a revolving credit line that allows you to use your money, pay it off with interest at any time, and then reuse it.
Of course, there will be some restrictions on what you can use them for, based on the lender you choose. However, it is quite clear that your expenses should be business oriented. Many small businesses choose these credit options to overcome financial obstacles, such as prepay with a new supplier or unexpected corporate expenses.
Types of business loans
When it comes to this type of loan, there are two main categories: secured and unsecured options. Secured uses both personal and corporate collateral to secure loan repayment. In the event of late payment, the lender may choose to close access to assets if he deems it necessary. On the other hand, unsecured business loans are not based on specific collateral to guarantee the lender that you will pay back the loan. Instead, you personally guarantee that you will do it. However, choosing an unsecured option also allows the lender to sue you and your company in case you are late paying. In other words, this option is not exactly unsecured and can also lead to the bankruptcy of both personal and corporate assets.
Not every small business or startup may qualify for a business loan. It’s best to take a look at the cash loan calculator at Best Bank website and check what options are available to you. True, it is easier to apply if the lender is not a bank. Regardless, there are certain criteria that you and your company must meet to be able to access the loan. In short, you need proof of cash flow, good credit performance and collateral. You should do your own research in advance and have all the necessary documents with you.