What is a Business Loan?
A loan for business is, simply put, a loan offered to a company or business. The distinctions between the two are few: personal loans often have higher interest rates, and business loans are held in the name of the business, protecting individuals in that business from personal liability for the loan.
There are two key types of loan – the secured business loan, and the unsecured business loan. A secured business loan means that the lender secures your loan against valuable assets of yours. In the event that you fail to honor the terms of your loan agreement – by missing repayments or failing to repay the full amount in the stipulated time – the lender has the right to sell any assets the loan was secured against and retrieve their money.
An unsecured loan does not require physical assets as collateral, and may be cheaper up front – but can cost more in the long run. With a lack of physical assets with which to recoup the money in the event of default, the risk is higher for the lender, resulting in increased interest rates and altered borrowing terms. In some cases, lenders may ask for a ‘personal guarantee’ from a third party, such as the CEO of a partner organization. This third party becomes a guarantor for the unsecured loan, agreeing to step in and pay up if the business involved cannot.
What You Will Need to Apply for a Business Loan
Also read: Ways to Expand Your Small Business to A Large Corporation