Although a startup business does not necessarily need a large budget at first, a small business loan may be required for basic expenses. Office space, equipment, supplies, and technology access are among the essential items needed to launch a company. If funds are needed, here are 4 ways to get a small business loan.
1. Apply for a Home Equity Loan
If you own real estate that has a high amount of equity, you may be eligible to apply for a home equity line of credit. While lenders use similar formulas to calculate your property value and available equity for loan purposes, the process may vary slightly from one institution to another. Compare interest rates, payment terms, and applicable fees as you investigate this option.
2. Ask the Bank about an Unsecured Loan
If your credit scores are good, generally over 650 to 700, you may be able to obtain an unsecured loan. This means that there is no property attached as collateral to the agreement, so if you default, you won’t lose your home or other possessions. However, your credit rating would suffer, and you may experience other financial problems, as well. Interest rates tend to be higher, and loan periods are often shorter, making this type of loan a little more challenging than others.
3. Consider a Title Loan
A title loan is usually based on a vehicle that is paid in full and has a high market value that will more than cover the amount of the business loan you are seeking. The vehicle is used as collateral, so if you default, it could be repossessed. Interest rates are often higher, and there may be penalties for not repaying the loan on time, which tends to be a short time period. This option works best for those who expect another funding source to materialize in the near future, such as an investment that matures, or a tax refund.
4. Request a Conventional Loan
A conventional loan is typically based on property you own that can be used as collateral. The terms are generally lengthier than other types of financing, and the interest rate is competitive with that of other major comparable lending institutions. There may be a pre-payment penalty, meaning that if you want to pay off the loan earlier than the established timeframe, there may be a financial penalty for doing so. This type of loan is fairly common and relatively safe for small business loans that can be repaid in a timely manner.
Business loans of various kinds are available, but each has distinctive terms and requirements. Investigate them carefully before choosing one to apply for.