Everyone’s doing it, so why can’t you? Getting a loan these days seem to be a financial norm. This is specifically useful in starting out a new business venture, especially if your are not that ready with the capital, yet. However, majority of the business downfall happened because of mismanagement of loans. With this, it is crucial to know your options well, to make sure that loan you are getting into is something you can manage both in the short-term and long term.
What are the types of loan I can avail?
If you are looking into starting your own business, there are different types of loan you can get. The most common loan for start-up business is the long-term loan. This loan is paid monthly, and it gives a bigger amount with lower interest. It is perfect for stable business or businesses with a strong growth plan. If you are not yet comfortable to commit to a long-term financing, there is also a short-term loan. Unlike the long-term loan, this is to be paid at the end of the agreed term. It is usually used in short term plan like building up the inventory of a business.
Alternative financing is a type of loan that can be used to start your own small business. The downside with this is it has a much higher interest rate. Lastly, there is the Line of Credit. Here, instead of receiving a big amount of money, the borrower can receive a certain amount little by little. This can be used if there is a slight need of money in the business. The problem with this kind of loan is the high interest rate and fees.
Other options are the open-ended and close-ended loans. Open-ended loans is the type of loan that can be borrowed over and over again. The common example of this is the credit card, wherein you only need to pay a certain amount in order to borrow money again. On the other hand, the close-ended loans can only be used once. Student loan, mortgage loan and car loan are major example if this type of loan. You need to apply for another loan once you have completed the payment for the previous one.
There is also the secured and unsecured loan. In secured loan, the borrower needs to have a collateral. But this kind of loan has a lower interest rate. While the unsecured loan doesn’t demand any collateral. Lenders would only rely on the credit history of the borrower, but this type of loan has a much higher interest rate than the secured loan.