7 Types of Loans A Business Owner Must Know About

types of loans how to get business loan

The majority of personal loans or loans that are unsecured consist of fixed payments.

There are other kinds of personal loans, however, including loans that have variable rates and ones that are secured. The types of loans you have access to will depend on a variety of factors.

These factors can include the state of your credit score all the way to the amount of time you need to repay the loan back. The contracts for loans come in a variety of different types with different terms on all of them.

Credit unions, banks, and other parties can choose to borrow money for many different purposes. 

These purposes can include necessities such as cars, financing homes or student loans.

There are other types of loans, such as business loans which are reserved for specific types of people (business owners, for example).

Regardless of the loan, they are governed by federal and state guidelines. These loan guidelines are particularly important. The loans guidelines help to protect consumers from unfair practices, such as the lender imposing extortionate interest and repayment.

Stipulations Behind Loans

The terms and length of loans have to be outlined very clearly so as to prevent confusion or legal action. In the circumstances that the borrower ends up defaulting on a loan, the ways in which the debt is collected and the associated costs are also outlined in the contract.

If you’re looking to get some money for whatever reason, it is good practice to know the types of loans or credit lines that you can opt for. You should also take a look at the terms that you can expect in taking out these loans.

Further down are 7 types of loans you could go for as a business owner and the terms associated with them. 

1. Unsecured Personal Loans

Unsecured personal loans are very common. This type of loan doesn’t use anything as collateral. 

Collateral could be any type of possession such as your home or the car you own. As a result, and secured personal loans are risky for lenders to give out, which means they may charge a higher rate annually because of this.

The approval rate and interest that you will receive on one of these loans will depend heavily on your credit score. Rates for these loans can be anywhere from 5% to 36% of the repayment duration of 1 to 7 years.

Unsecured personal loans are the best for consolidating debt and making large purchases. If you have a credit card with a high-interest rate, getting one of these loans may help you to alleviate the debt from the credit card.

2. Secured Personal Loans

Secured personal loans are different in that they hinge on collateral in order to gain access to them. 

This means that if you end up defaulting on this type of loan, the lender may seize the possession used so secure it.

Secured loans can include mortgages, which are secured by the home and loans for cars, among other things. There are some banks and lenders online that will allow you to take out secured personal loans.

These loans let you borrow against the value of your car or other assets. Because of the risk involved on your part, secured loans have lower interest rates. This can make them an attractive option if you are quite certain you can pay back the loan on time, as interest will be notably lower. 

3. Fixed-Rate Loans

There are many personal loans that have a fixed rate. In essence, this means the interest and the payments that you have to pay each month never change for the duration that you have the loan.

These types of loans are good if you prefer consistent payments every month, and that you don’t want your interest rate to rise over the duration of your loan.

Having a rate that stays the same also makes payback easier, as you don’t have to think about how much you may have to budget for the next month or payments changing.

4. Variable-Rate Loans

Interest rates that you find on these types of loans are connected to a benchmark rate that banks set themselves. The benchmark rate can fluctuate up and down in many different ways; this can affect the rate you have to pay on your loan, monthly payments, and total interest.

The benefit of having these types of loans, however, is that the APR is usually lower than with a fixed rate. There can also be a ceiling to how much the rate on the loan changes over a certain amount of time.

To get a loan like this makes more sense if the repayment term is lower. This is because rates, although they can rise, are not as likely to do so over a short period of time. 

5. Debt Consolidation Loans

These types of loans are used to pool a variety of debts into one loan. They also carry an APR that is lower than the debts that you are combining into this one loan, meaning you can save money on interest.

This also allows you to simplify how you pay your debts back, as you now have to pay only one monthly payment at a fixed rate.

6. Cosign Loans

This type of loan helps borrowers that have a tiny, almost non-existent credit history and find it difficult to get a loan out by themselves.

Someone that cosigns a loan is the person responsible for paying it back if the borrower is unable to. They are in essence a form of insurance.

If you have a cosigner that benefits from strong credit, then the chances of getting this loan are raised significantly. In turn, this may make the rate you pay and the terms more favorable. 

7. Personal Line of Credit

Personal lines of credit are what are known as revolving credit. These are more similar to having a credit card than an actual loan.

Instead of getting a large amount of cash upfront, you are enabled access to credit that you can get as and when you need it.

You’ll only pay any interest on the amount you borrow. This type of credit is the most advantageous when you're budgeting for expenses that are ongoing, rather than something you need to pay in one go.

Getting the Right Types of Loans 

When looking to borrow money it is very important that you know the terms of your loan completely. Make sure you have a thorough understanding of the types of loans that are available and how they might tie to your credit and your belongings.

It is not difficult to get a loan, but make sure you know the repayment terms when you do. As long as you stay on top of these facts, taking a loan for whichever purpose you have should be fine. 

Visit the Loans section of the Bootstrap Business Blog right now to learn more about giving and receiving loans.

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