Business loans: if you know how to make good use of
money and expertise
By
Pamella Scott
Are
their rewards of being your own boss? Yes, in fact many
– you make the rules, you work for yourself, you
take home the profits and you get to do what you want.
Business and finances are closely intertwined. Finances
are basic to business development. Any new scheme or
business idea requires money to grow. Business loans
are the most popular way of raising finances for business.
A
typical advantage of business loans is that the loan
lending company or the bank has claim only on the interest
rate of the loan. Unlike an equity investor, the loan
lender would not be entitled to percentage in business
profits or share in the company. You retain the ownership
of your business. Business loans can get money fast
and easy for any kind of business need like starting
a small business, refinancing, expanding your business,
purchase or any other commercial investment.
Business
loans are offered as secured and unsecured business
loans. A secured business loan can serve as the simplest,
most efficient way of finding finances for your business
plan. Secured business loans come with many benefits
which include lower monthly payments, facility to borrow
more and spreading the repayment over a longer period
of time.
Secured
business loans certainly score more than other form
of finances. With secured business loans you can boast
of flexibility which allows you to conserve your cash
and working capital. You can use these funds for any
purpose like paying off current debts. Secured business
loan can provide you with the ability to design your
very own repayment schedule that fits your budget. You
can get access to cash with minimal up-front payments.
A
secured business loan would enable you to retain the
legal title of the assets you are placing as security.
Your home, real estate, commercial equipment, vehicle
or any valuable asset can act as security for secured
business loans. The main disadvantage with secured business
loan includes the fact that there may be many events
that may be taken as defaults on the loan like late
payments, bankruptcy and violation of any obligations
in the loan documents. Talking openly with your lender
about any default can easily sort out any inconvenience
at all regarding secured business loans.
Unsecured
business loans also offer similar advantages as its
secured counterpart minus offering any collateral for
the loan claim. However, unsecured business loans might
entail a higher rate of interest. The benefits of flexibility,
retention of ownership, budgeting is same as secured
business loan. Interest payments on unsecured business
loans are tax deductible, whereas purchases financed
from profits are made out of taxed income. Unsecured
business loan are scheduled at the outset, so cash management
is easy. With unsecured business loan you would be required
to provide some additional guarantees which can be supplied
from your bank, your partners or you. This may affect
your credit rating and standing with your bank.
Credit
history is the criterion that helps the lender to decide
whether you are a credit risk or not with respect to
unsecured business loans. A credit history that is flooded
with late payments, defaults or bankruptcies won’t
leave a positive impact on the loan lender. If your
credit history is poor, an unsecured business loan application
with a letter explaining your changed circumstance would
leave a positive impact. Honesty in giving out credit
information is the best way to deal with negative credit.
The best way of getting your unsecured business loan
approved is to prove that you can and will repay the
loan. Also, showing that you have invested in your business
would provide the lender with the satisfaction of knowing
that his financial interests is united with yours.
For
business loan, be prepared with business financial statements,
business plan with financial projection, personal tax
returns. There will be questions asked. Be prepared
to answer them. Emphasize on your financial performance
and get an accountant to help you with it. Be clear
about why you need this business loan and be prepared
to explain that to the loan lender. The loan amount
on business loan can range from £50,000 to £200,000
and above depending on your status.
Getting
money through business loans - is only the first step.
The next step is being a good borrower. This will provide
you with the cooperation when you require it. You would
be required to produce financial statements on a regular
basis. Be ready to provide them. Understanding the requirements
and executing them is the best way to developing good
business relationships. Not everyone has the acumen
to start a business. You have that, don’t let
it go awry. Take a business loan.
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