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Starting a business can be costly, and so can be expanding one. At any stage of your business life cycle, a business loan can help you grow your business or address specific needs along the way. If you need financial support to expand your business, boost production, or buy machinery, a business loan is the best option!
Unemployment rates are high these days and many companies have gone bankrupt, or hardly hanging on by a thread. In today’s fluxing economic climate, business loans are the best option business owners have to compete with rest of the companies. Along with the private banks, government also offers business loans for starting, upgrading, or expanding your business.
Types of Business Loans
There are different types of business loans available these days. You should have some idea about the different types of loans so you’ll understand better what your lender is offering. Let’s have a look at some of these types:
Short Term Loan
A short term loan is the one which is repaid in a short period of time, usually within one year. This period could be months or even a few weeks which depend upon the lender. Short term loans are the best option for businesses having bad credit.
It is the most common type of business loan in which a specific amount of money is paid back through a schedule of payments. Amount of payment depends upon the balance of loan and the interest charged by the lender.
Small Business Loan
These are the loans provided to small businesses for different purposes by the lender. The payment method is easier and have less restrictive requirements. The amount which is to be paid back depends on the loan payment and interest rate.
Your business needs new equipment, but you can’t afford it? You don’t need to worry anymore because leasing is an option to consider. Equipment leasing means to rent equipment to a business at a monthly rate for a specific number of months. Buying new equipment and maintaining it, is costly. Due to the high costs involved in owning equipment, many business owners decide to lease rather than own. Leasing allows you to make smaller monthly payments instead of buying it at once.
Another option available for financing new equipment for your business is “Equipment Financing”. In equipment financing, loans come from different sources depending upon the nature of equipment purchased.
Quicken Loans is a popular mortgage lending company situated in Michigan. Over the past decade or so, this company has built a reputation as a reliable way to get financing. The process of obtaining a mortgage through Quicken Loans is somewhat similar to that of traditional lenders. The process begins by contacting a Quicken Loan mortgage banker. The company then uses your financial information to determine the loan options for which you qualify. Before you close the loan, the company verifies whether your income information is correct.
An advantage of mortgage through Quicken Loan is “choice”. It offers an adjustable-rate as well as a fixed rate. Its reputation for easy and fast service is a clear advantage.
Commercial Mortgage Loan
A commercial loan is a type of loan which is secured by commercial property such as shopping center, apartment complex, or office building. In a commercial mortgage loan, the needs of borrowers and lenders both are safeguarded. It is a long-term loan (up to 25 years) that gives cash to secure business premises.
Most of the commercial mortgages offer 70% of the total value of the property, so the lender relies on the business to find the remaining amount. Commercial loans are better than residential loans because residential loans are paid in about 30 years. On the other side, commercial loans are deposited over shorter periods. Because of this reason, less risk is involved and the lender gets higher payments each month.
Credit Card Cash Advance
A credit card cash advance means to borrow cash against your credit limit. It’s the same as withdrawing money from ATM with your debit card except for the fact that the cash comes from your credit limit rather than your bank account balance. In other words, you have to pay it back with interest! Credit card cash advance transactions can be accomplished by using your PIN at an ATM. However, cash advances have a higher cost than ordinary transactions. A cash advance fee will be charged and higher interest rates are taken. Besides, the ATM fee will also be charged if you use ATM for a credit card cash advance.
However, there are certain ways to avoid cash advance fees. Look at the points below!
- Pay it off as quickly as possible. Don’t even think of weeks or months, pay it off in days.
- Take a small amount. Fees are based on the percentage of advance. Usually, the fee is 5% with a minimum of $5.
Financing Rates and Costs
Loan pricing is an art. While shopping for commercial financing, it is the most important factor to keep in mind. Financing costs vary widely between lenders and also depend on various factors like revenue, credit score, or time in business.
There are mainly two factors that can affect the cost of your business loan. First, the interest you’ll give to borrow a loan. Second, the fees that you will pay before, during and after the loan. A combination of these two gives the Annual Percentage Rate (APR) which is the cost of your loan for every year.
The interest rate is the main cost of your loan which depends on various factors. The major factor influencing it is whether your loan has a fixed or variable interest rate. A fixed interest rate remains the same over the life of your loan. However, variable interest rate changes with the market.
There is a difference between home mortgage rate and commercial mortgage rate. The home mortgage rate is between 6-8%, while that of the commercial is 8-14%. This is because the home value is guaranteed to go up, but its not the case with businesses. Businesses can fall in value or go up depending upon the market.
Business Loan Fees
Some of the business loan fees are given below:
- Withdrawal fee: It is the fee deposited for every transaction if your loan is issued with a debit card or visa. It is about $1 to $4 per withdrawal.
- Origination fee: This fee covers the costs of processing your loan application including your credit checks and administrative expenses. It is about 1% to 5% of your loan payment.
- Late Payment Fee: This fee is charged if repayment is late, usually after a grace period of 10 days.
Business loans have become very common and fruitful these days. Many small businessmen take the loan, expand their business and become an icon for others. So, if you want to compete with the rest of the world but are financially weak, wait no longer! Take a business loan, start your business, and enjoy a better and respectful life.