Business Loans 

For those who are looking to start a new enterprise or expand their existing company, business loans are powerful tools. These financial vehicles will provide the liquid capital necessary to raise a workforce, purchase machinery or rent a property (amongst many other needs). Still, the types of loans available can be a bit tricky to understand while the application process may be confusing. It is a good idea to have a look at these subjects in greater detail.

The Types of Business Loans

One of the most common types of loan is a secured business loan. As the name suggests, the security arises from the fact that a certain amount of collateral (such as an existing piece of property) is balanced with the loan itself. If one defaults, this collateral may be taken by the lender as compensation. An unsecured loan is the exact opposite. As this is more of a loan based off of "good faith" and good credit, the interest rates are often higher while the amounts able to be borrowed (and the repayment period) are generally less.

Small business loans are a major category and represent the majority of loans given (both secured and unsecured). As they are specifically geared towards business owners, interest rates can be slightly more amenable. In most cases, the applicant must be an accredited member of the Small Business Administration (SBA) to qualify. Fixed-rate financing here is another worthwhile feature.

These are a few of the most common types. Other varieties include working capital loans, merchant cash advances and prearranged lines of credit.

How to Apply for a Business Loan

The application process is critical to understand. First, a loan application form from the relevant lender needs to be obtained. The applicant should be prepared to answer such questions as:

A business plan is also likely to be necessary so the lender can determine the viability of the loan itself. Should a company already be in operation, a business credit report and all financial statements should be made available. For those seeking a secured loan, proof of collateral is also very important. There may be other legal documents such as articles of incorporation or franchise agreements which are required.

Factors to Take Into Account When Choosing a Business Loan

The primary consideration is the amount of money to be borrowed and if it can be paid back during the allotted time frame. Other concerns of great importance are:

As business loans are such powerful tools, such considerations should never be taken lightly. In fact, these loans are likely to directly define the success or failure of any budding operation.