BUSINESS LOANS

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Business Loans

They say all great businesses start with a simple idea. The thing is though, there’s a lot of hard work in between the idea stage and making the business into a reality. One step could be to convince someone who’s got money that your business will be successful. Essentially, if you have a good business case, you can find some investors, apply for a business loan or get both.

So what’s a business loan?

A business loan—as the name suggests—is a loan that’s specifically set up for those who have a business. You might get a business loan in order to buy a business that already exists, to expand your own existing business or in order to start a business from scratch. There is no set maximum amount you can apply for as a business loan, but the amount will depend on factors like if it’s secured or unsecured.

The term of a business loan

There are two main types of business loans: secured loans and unsecured loans. A “secured” loan is one that is backed by your assets. This means that if you fail to make your repayments, the lender can seize the asset you agreed to provide as security (like your car or your property) and use the money to pay back your loan. With an unsecured loan, you don’t need to provide any of your assets as security, but this means the lender generally won’t be inclined to lend you as much money. (For more info on loans, check out our secured and unsecured loans page)

To get an idea of long you need to pay back the money you borrow, you’ll need to figure out how much you need and how much you can repay each month. If you need a larger amount which may take you longer to pay back, the lender will probably require an asset for security.

An unsecured small business loan will generally need to be paid back within 5 years. However, if the loan is secured with a residential property, the borrower may be able to take up to 30 years to pay the loan back. 

Fees

To get a business loan, it’s standard to pay a few fees. There’s generally the establishment fee, a monthly loan service fee, and of course, the interest on the amount you borrow.

Depending on the circumstances of your business, you may be offered different interest rates and terms for your loan. You can get a fixed interest rate on your loan, which is where you’re required to pay exactly the same amount back each week or month until the loan is finished. This is a good option because you know exactly how much you’ve borrowed and exactly how much you need to pay back.

Alternatively, you could get a variable interest rate, which may fluctuate according to broader trends in the economy. It means that the amount of interest you have to repay will increase if the interest rate increases and decrease if it decreases. A variable interest rate can also allow you to pay back more money when you have it, then redraw that money if you need to, but this depends on the terms of the loan and redrawing usually comes with a fee.

This information is intended to be general in nature and should not be relied upon for personal financial use.
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