How to Choose a Loan for Business?

Business loans are offered nowadays with a lot of flexibility, tenure and interest rates. It is usually as a whole new category of loans by the lenders since the money earned from the business loans are completely different from those loans given to an individual. Yet, most of the self-employed individuals and professionals are qualifying business as a practice for loans. And, various categories of such loans like the equipment loans can be classified as one of the main types for the borrowers.  

Read on to be aware of the available options on choosing the right type of loan for a business and how to avail these loans from the lenders:

Secured Loans:

Secured loans are availed by most of the businessmen as these type of loans are used for the capital investments operations and also to expand a company or a firm. These kinds of loans will be available for various reasons like purchasing a land to construct an office or factory and other construction purposes. It is usually payable in a longer tenure and it can be customized during the repayment methods in ways like the bullet, balloon, step-up etc. In businesses, the secured loans are easier to avail and it will be also given in lower interest rates. Since the secured loans are backed up with asset produced by the borrower, these loans are mostly provided with lesser interest rates. Loans are also available for certain portions like the value of the asset in some times like the whole 100 per cent value of the asset is covered by the loan. 

Below are some of the most common forms of secured loans that businessmen can avail as secured loans:    

Equipment or Commercial Vehicle Loans

These loans are mostly bought by people who are using machinery and vehicles for their business purposes. Therefore, providing them with the loan is easier for the lender compared to the other borrowers. In certain cases like the equipment used in a hospital, lenders will offer a moratorium for these loans. In these loans, the borrower will not pay any installments and allows them to grow their business and builds up the business for the borrowers. Yet, the interest rates will be calculated and added to the due amount in the loan period. IN some cases, the existing equipment loans can also be refinanced in this category of the loans. 

Gold Loan

It is one of the easy and safest options to borrow a loan for business. It is also easy for every businessman to buy a loan with the gold pledged to the lender. Since the gold has a huge value all the time, the asset is valued by all the lenders in the market as a valuable ornament. Processing a gold loan is also simple and easy as it takes only few hours to approve the loans. After the tenure of the loan, if the loan amount is paid back to the lender on the specified time, the borrower can retain the possession of the loan which was pledged as a security.

Loan against Shares, Mutual Funds, Insurance and Bonds

These kinds of loans are also given to businessmen for developing their business or transforming their business to the next level. Money invested in traded stocks and insurance policies are considered as an asset by the lenders and loans will be given to the borrower based on the value of the shares in the market. However, terms and conditions will vary according to the amount invested in that particular kind of investment. It also depends on the risk appetite of the lender that ranges from 20 per cent to 80 per cent of the share value taken as the loan amount.

Unsecured Loans:

For startups and business that are in early stages, unsecured loans will be difficult to avail from the lenders. Since most of the startup companies will be running in a rented place and they will not have any asset value. It is difficult to trust these startups as they may not pay back the loan amount to the lenders. Nevertheless, the lenders do give loans to these start-ups with some loan categories that will probably help the founders of the businesses and make them avail the funds to develop or grow their business or even for their personal needs.   Let us see the different categories of unsecured loans in them.

Business Loans

Businesses that are functioning for a reasonable period will have the credit limit according to the lenders in the form of cash credits, overdraft facility, bank guarantee etc. Many lenders offer the business loans in which a businessman can avail the funds from, to enhance or expand their business. However, the terms and conditions of each lender vary according to their requirements of the borrowers. Some lenders check the credit score of the founder of business, whereas other will review the track record of the previous payments of the borrower. And if the borrower is eligible, loans will be provided for these businesses to expand. 

And the interest rates will differ from lender to lender with their criteria depending on various factors like the number of years since the company was established, assets, turnover, credit score of the promoters, purpose of the loan etc. Hence, businesses that prove a steady growth by showing a good track record in the past history of payments will more likely get the unsecured loans from the lenders with attractive interest rates.

Personal Loans

These personal loans are purely based on the statements of the income for the last six months, IT returns of the borrower etc. Lenders will provide the personal loans to the borrowers based on variety of reasons. Some of the factors that include in the requirements of the lenders are creditworthiness of the candidate (calculated individually), track record of the individual as well as the company, assets in the name of the applicant or borrower etc. These sort of personal loans are availed by the borrowers for various reasons such as health issues, house renovation, vacation, child’s school fee etc.

Loans are offered with multiple methods to businessmen who are in need of funds to develop their business. If you are ready to follow the above mentioned points and plan yourself to take up a business loan, you can go ahead. And it is ultimately based on your comfort and choice to avail the best suitable loan according to your financial situation.