One of the ways to develop your business is with the help of a business loan - a boost of capital that could help your business grow without having to worry about impacting cash flow.
However, with a range of business loan options available, it's highly important to ensure you're getting the right one, choosing a loan that matches your business's needs and meets your objectives.
Loan repayment terms - the length of time over which your loan will be repaid - vary with each and every business loan. Typically, and with the vast majority of lenders, the time period can be tailored to your business's needs in that moment in time.
If your business needs capital with a quick turnaround - perhaps to counter sudden difficulties like cash flow problems or seasonality - then a short-term loan could be a great choice. You receive the money fast, and then be able to pay back the loan over a time period ranging from just a month to two years. Most lenders also offer an easy application process with forms designed to take as little time as possible.
Alternatively, if you have a less urgent need for capital, you could consider a loan with a longer repayment term. This has the added benefits of building up your credit score over time – increasing your chances of an approved application.
It's worth caveating that short-term loans aren't necessarily more expensive than long-term ones, despite the fact that interest rates on short-term loans tend to be higher. It's because a long-term loan's repayment will be made over a much longer period. As such, when considering between several options, it’s important to always calculate the full amount that you'll be repaying, before making a commitment to a loan. Many lenders offer online calculators that make this an easy, straight-forward process.
To begin with, the notion of a secured or unsecured loan can seem a little confusing. After all, surely everyone wants a loan that's secured?
In fact, a secured business loan means something quite different to our daily usage of the word. It's a specific type of loan where the borrower provides the lender with an asset as a form of security. If the borrower is unable to repay their loan, the lender is able to sell the security to recoup their lost capital. A security could be anything, from shares in a company, to stock, to a vehicle, to property.
Meanwhile, an unsecured loan doesn’t mean it’s one that's unsafe - it's simply a business loan that doesn't involve putting an asset on the line in quite the same fashion. Instead, if the loan is unable to be repaid, then a guarantor of the borrower becomes liable for the lost amount in their place. As this type of business loan is a little riskier for lenders, higher interest rates are usually applied.
Both secured and unsecured loans offer different advantages. If you're borrowing a large amount, then a secured loan could be more suitable for you; it’s a safer option for the lender, as there’s an immediate security they can fall back on, and, typically, repayment plans are much more flexible. However, if it's just a small amount of short-term capital that you're looking for, an unsecured loan could be easier and quicker to obtain as there’s no need to specify an asset. Either way, think about what you need from your loan, and select your option accordingly.
For all borrowers, a pressing concern is knowing whether or not any prospective lender is safe and secure to use. It’s especially important when looking through options online, due to the risk of fraud. There are a few major signs to look out for.
For one, there’s no such thing as a guaranteed business loan - a loan that will be issued there and then with no turnaround time at all. A guaranteed business loan can be a way of fraudsters manipulating borrowers into providing sensitive details about their business or cash without really thinking about what they’re doing. No reputable lender will provide a loan before vetting an application’s details, meaning if you are offered a guaranteed business loan, it’s probably too good to be true.
Additionally, if you’re ever asked to provide funds up front, be wary. It’s highly uncommon for any lender to ever require funds in advance of a loan being issued. Instead, you should only need to make payment after the loan’s been received, within the terms and conditions of your agreed repayment plan. If you’re being asked to provide funds before your loan’s issued, take care and ensure that there’s a legitimate reason for you doing so. If not, it’s highly likely that you’re at risk of falling victim to online fraud.
Other signs involve making sure that websites are secure and have all the appropriate encryption in place for your business loan application to be protected appropriately. We’ve written more about this elsewhere on the Esme blog.
A concern for any prospective borrower is ensuring that funds arrive with you in a timely manner. After all, you don’t want to be spending large amounts of time waiting for money to arrive that your business urgently requires. While we’ve already mentioned that guaranteed loans aren’t worth the risk, there’s an optimal middle ground between a loan that’s too good to be true, and slow service preventing your business from growing as swiftly you’d like it to.
The best way to get around this is to do your homework when considering your choices. Look up reviews from customers and businesses who’ve used the service you’re considering; that can be a great sign that you’ll be in safe hands. And even better, look for testimonials from borrowers who’ve worked with the lender previously, which will give you key insights into the service you can expect to receive.;