The loan received depends on many factors, including the lending source and loan type. Lenders also look at how long you've run your business, the capital raised, and your profits. On top of that, your credit history as an entrepreneur may also influence the loan amount.
Such factors make it even more necessary to evaluate different lending options before you commit. Failure to get the amount you hope for means you won't accomplish your financing goals, and if you take a second loan, you may fall into debt. First, let's look at factors that make loans different.
Banks, government bodies, and online lenders can finance your business. This variety means you require a thorough analysis to get the best loan terms. Therefore, compare the following.
Some lenders ask you to repay the total amount borrowed plus fees and interest within months. On the other hand, others give you years. The duration matters because if your business isn't financially stable, you'll have to take more loans to pay off your current debts.
When you take a secured loan, you have to give something as security, and this can be assets like equipment or real estate. The lender values your collateral to see how much you should get in the form of a loan. Hence, you may lose your business assets when you default.
Find out how many payments you will make, whether weekly or monthly. You can compare these expectations against your sales forecast to see whether it's a practical engagement.
It's the one thing that can tell you whether to go on with the commitment or find another lender. High-interest rates put you at risk when you default as it lowers your credit score. On that note, your creditworthiness is one factor that affects the interest rate received for your loan. As such, you get a higher interest rate if your lender perceives you as high-risk because of your credit history.
These come from the government, and they target entrepreneurs starting or looking for ways to expand their businesses. Further, these programs suit entrepreneurs who may not qualify for bank loans.
These loans range from $500 to $5.5 million. For example, a microloan can get you up to $50,000 to start or expand your business.
Consolidating business debts combines them into one repayment at a better interest rate than what each loan or debt had. Therefore, the amount received depends on the business debts and loans you want to consolidate. The terms for these loans also differ because there are numerous lenders, from banks to online lenders.
Although this type of business financing depends on an individual lender's financial strength, regulations govern how much a business can raise. As such, you can crowdfund a maximum of $5 million every 12 months.
Unlike the option above, you don't get a lump sum when a lender approves your line of credit. Instead, it's a revolving amount reviewed and renewed annually like a credit card. Hence, there's a limit you can borrow, and once you withdraw, the interest accumulates. When you repay the amount withdrawn, it becomes available for you to borrow again.
You can borrow between $5,000 and over $1 million. The interest rate might be lower than that of a business line of credit. Further, you know the fixed amount you can borrow from the start. The repayment may be from three months to a decade.
As the name suggests, it funds equipment purchases or leases. The interest rate may be lower than other loan types, and the lender may finance up to 80% of the equipment value. The lender may attach an interest rate between 4 and 30%, depending on factors like your credit rating and how long you've been in business.
A lease can be a better alternative because it's cheaper and can get you equipment when you don't have a down payment.
There's a variety of same-day cash loans. These include personal installment loans, car title loans, and payday loans. Your borrowing history may also deny you these instant loans, especially when asking for personal and payday loans.
As for car title loans, the lender uses your assets as collateral. You can get an instant loan of several hundred to seven thousand dollars when you apply for a personal installment loan. Such funds can keep you going for a while if your business isn't making enough for you to take a salary. You can also use a car title loan to get some capital to boost your business.
Business loans can lend you from $500 to millions. Therefore, start with a clear financial need because the more you ask for, the higher the risk of getting into debt. Some options cater to a specific business need, such as equipment financing.
Others, such as consolidated loans, help you take charge of existing loans and debts. Whatever you go for, don't ask for more than you need.
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