The pandemic has been the major cause of the job loss of millions of people lately. It has been a real struggle for all of us, especially those whose lives depend on their jobs. Being quarantined gave us many ideas on how to survive. We have thought of many things to do that can give us something to live for, no matter how small or big it is. People have started creating their small businesses like food, clothing, apparel, plants, and services like commissions.
Of course, to start a business, you have to have a capital first. The amount that you need depends on the type of business that you want to open. It is not a big deal for privileged people and has the means and resources to do what they want, but for those who want to earn a living, there are options like borrowing money from their trusted family or friends or getting a business loan.
What is a business loan?
A business loan is something that most people acquire to gain the financial assistance they need to start their business. It is a debt with its legal and formal terms and conditions, and the business owner shall repay the debt according to their signed contract. If you want to start your business and get a business loan, you need to fully understand it.
The money that you borrow gains interest. It can be fixed interest or variable interest. In fixed interest, the rate remains the same for the loan duration and the payback period, while in variable interest, the rate can change based on various determinants. Other features of a loan to remember are the payback duration, which can be in months or years, and the collateral if the business cannot pay the loan back according to the agreed time.
There are many things to consider in getting a business loan, like should you make your business loan secured or unsecured? The main difference between these two is the collateral. Secured business loans have something valuable for a back-up, while unsecured business loans leave the lender without collateral.
- Secured business loans
In this kind of business loan, the entrepreneur offers something to the lender if they cannot pay on time. These offers should be something of value like cars, homes, stocks, or real estate. The value of this collateral should equate to the value of their loan.
- Unsecured business loans
In unsecured business loans, no collateral is involved. In this case, the lender gets more vulnerable. If you intend to get this kind of loan, the lender will go over your credit score more thoroughly than in secured business loans. They will obtain even the tiniest details of your financial history. There is no need to offer your assets since there is no collateral required.
Creating your financial decisions
If you are eager to get a business loan, you have to make sure that you fully understand all of its aspects and features first. To choose whether you need to get a secured or an unsecured business loan, you should consider the amount of money you need and the strength of your finances. Before fully diving into your business, make the necessary preparations such as creating your business plan, ensuring your credit score is enough to get approved, and providing the needed documents for your application.