Types of Business Loans: It’s the normal nature of business to utilized loans for a wide variety of purposes. For some businesses the need may be for capital to expand services, purchase new equipment or hire additional employees.
Many times this type of financing is associated with real estate purchases, (office buildings, homes, raw land): the types of assets that a money lender can use without regard to the type of business that you have. A bridge loan Is considered to be somewhat riskier than either long term financing or Purchase Order loans so be aware that the interest rate may be higher than you would normally expect.
Secured -vs- Unsecured: Of the two basic loan types, secured loans are easier to get because credit is not as much of a factor since the loan is secured with an asset of some kind. The asset or assets used to provide the security can be any one or combination of things. Depending upon the lending institution you are dealing with, suitable assets may include real property, inventory, equipment, accounts receivable and even intellectual property or trademarks. Credit ratings for the business, as well as personal ratings for this type of loan, are not nearly as much of a factor as with an unsecured loan.
You do need to be aware that the contracts for bridge loans that are typically used for short term loans are very tight and heavily weighted in the lender’s favor. They are sometimes called hard money loans. The interest rates are very high on these loans.
Character – Build up a reputation before you try to approach a bank for a loan. Your business will have to have some history and it will be ideal for the business to have some good standing relationships with customers and vendors who can vouch as a reference. Also, maintain a good relationship with a bank that holds your business account as they might be the best place to approach for a loan.
If you are new to the loan market, it may seem a bit daunting but you’ll get the hang of it very quickly. Most loan officers will be very helpful and walk you through all the details. Since you’ll have a pretty good idea of the value of the security they are asking you to put up as collateral, the only thing to watch for is to not let the loan become over secured.
Collateral – There is not much to explain here. Your chances of getting a loan greatly increase when you have collateral or a guaranty that can back the loan.
Conditions – Conditions refer to the unique situation of your business and the environment it operates in. The bank will analyze the industry your business operates in to see if it is worth investing in. It will also compare your company’s financial performance against competitors in the same industry to see if you are doing well. Do your research and try to match your competitor’s financial performance if you want to stand a good chance of getting a loan approved. Can you get a business loan these days? Absolutely, but you need to position yourself appropriately.
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