With the worst of the pandemic behind us, and economic recovery still on track in 2022, now may be the best time to start your new business. Alternatively, you may want to pick up where you left off with a business that did not survive the early months of the pandemic. Either way, you will need financing.
When searching for funding, you will need to compare top business loan companies. In order to make sure you get funding that will best serve your company, you should know about the different types of business loans.
Here are some guidelines for choosing the right business loan.
Secured vs Unsecured
Secured loans have always been the least risky and have therefore come with the best terms. Lenders know that if you default on the loan, they can repossess your asset or claim from your guarantor. However, the world has changed a lot.
Much of this change comes down to how we do business in 2022. We were heading in a digital direction even before the pandemic hit, but the pandemic sped up the process. Many more businesses no longer rent, let alone own, properties. Many businesses do not own any assets or have any need to.
This has made it so that more businesses are going for unsecured loans. If you are not buying property or equipment, and need funding for things that are not so concrete, you will probably have to choose an unsecured loan. You will have to settle on a relatively high interest rate, but if you have a solid business plan, you can make a high-interest loan work.
The fact that the banks are not in control of all lending is definitely a good thing. However, they have always been the most reliable lenders, in part because they are more regulated than private companies. When you choose to go with a private lender for an unsecured loan, you are making yourself vulnerable to predatory lenders.
You are unlikely to get a good loan from a bank if you have no security, and will have to risk lenders who are less regulated. As in any other industry, some are more trustworthy than others.
Go with lenders who do not offer products that sound too good to be true. They should be realistic about your business. Check what experts and customers have to say about them, and whether they have been involved in any scandals.
You are also going to have to agree to loan terms. The riskier your loan, the worse your terms will be. If you are not confident you can pay back the loan in the agreed time, look for other options, even if they are less favourable in terms of interest or loan amount.
Optimism is great, but not when you are choosing a business loan. Taking a leap of faith when the odds are against you in this respect is only likely to get you in hot water.
Now may well be the time to get your business up and running. Finding the right funding is possible, with many excellent loan providers out there.
Interesting Related Article: “What is a Loan? Definition and meaning”