How to choose a loan for your business
New businesses often require an infusion of cash to get up and running. Whether it’s to cover the rent for an office, purchasing or leasing equipment, buying stock or paying new employees, a business loan is a simple way to invest in your own success.
A business loan is money borrowed from a financial institution to cover some of the costs of running a business.
There are a few different types of business loans, each with its own benefits, suitable for different situations. These include:
• Business overdraft.
• Line of credit.
• Secured loan.
• Unsecured loan.
• Fixed rate loan.
What should you consider when applying for a business loan?
Like any other financial commitment, a business loan should be taken out in a situation where you’re confident you can make the repayments. Take the time to research your different business loan options to ensure you find a loan suitable for your business. There are many factors to consider when applying for a business loan, including:
• Credit score: Your personal credit score is a numerical rating lenders use to determine the risk of giving you a loan. It takes into consideration any other debt against your name, as well as how often you miss repayments.
• Fees and charges: Pay close attention to the different fees and charges that come with your loan. This typically includes late or missed payment fees, loan insurance and administration fees.
• Interest rate: Your interest rate will determine how much interest you will pay over the life of your loan. While the interest rate is usually calculated per annum, you’ll likely be charged each month. Interest rates can be either fixed or variable.
• Loan terms and conditions: Be sure to pay careful attention to the terms and conditions of your loan. This will cover information such as the length of your loan, if and when your interest rate will change and how much your minimum repayments are.
• Minimum repayments: No matter what type of business loan you take out, you’ll need to make regular repayments, either weekly, fortnightly or monthly. Make sure you know how much you’re obligated to pay.
• Overdraft limit: Similar to a credit limit, an overdraft limit is the amount of money you can borrow against your business.
• Secured loan: A secured loan requires you to provide collateral, usually in the form of an asset, such as a home or another business you own.
• Unsecured loan: An unsecured business loan does not require you to provide any form of collateral as security against the loan. However, your loan repayment terms may be stricter or your interest rate may be higher to combat the risk.
How to apply for a business loan
Once you’ve set up the basics of your business, you can apply for a loan online. After comparing business loans, simply click the ‘Go to site’ button in the comparison table. This will take you directly the application on the bank’s website. Online applications typically take less than 10 minutes to complete. Make sure you have with you:
• 100 points of ID.
• Business name.
• Australian Business Number (ABN).
Now you know what type of loan you need, start comparing business loans today.