Types of Business Loans

There are many types of business loan available, including secured and unsecured loans, and flexible loans for particular business types

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Business loans is a broad category, and there are lots of different types of business loan. The term can refer to many things including:

  • Secured business loans
  • Unsecured business loans
  • Revolving credit facilities
  • Business cash advances
  • Peer-to-peer loans

Each of these loans varies depending on the needs of the business, and with so many types of loan available, it has never been easier to find the one that’s right for your business and situation.

Secured loans

Secured loans are ideal for businesses which have valuable assets they can use as security, such as commercial property, vehicles, and machinery. These loans usually offer the lowest interest rates due to the asset-backed nature of the loan itself, and are generally for a large amount of money with a longer term to the loan.

The asset used as security doesn't necessarily have to be owned by the business either. If, for example, a company does not have any commercial property to offer as an asset, privately owned residential property can also be used to get a secured business loan.

Unsecured loans

Unsecured loans are not backed by any assets, and instead are based on your business's performance and credit rating. This means there is a higher risk for the lender, as there is essentially no guarantee they will be getting their money back.

Due to this higher risk, the interest rate will usually be higher than a secured loan, resulting in a more expensive loan overall. While the interest may be higher, an unsecured loan is usually for a smaller amount than a secured loan would be, and for a shorter term length. They're also faster to set up, since there is no asset that needs to be valued or inspected.

Successful applicants for an unsecured loan will have a strong track record of successful trading, so the lender will feel more confident about getting their money back.

Secured vs. Unsecured

Which loan do you need for your business? There are pros and cons to each loan type — secured loans are cheaper due to an inherently less risky deal for the lender, but your company will also need significant assets to be able to get the loan in the first place.

On top of this, due to the processes involved in securing the loan, it can take longer to get the cash than an unsecured loan would. On the other hand, an unsecured loan will be pricier due to the risk involved on behalf of the lender, however they are quicker to process due to the absence of valuations of property or machinery, and there is usually no up-front cost that is present in a secured loan scenario.

What it boils down to is how much you're willing to spend over the course of the loan term, and how much fast you need the cash in relation to the size of the loan required.

Revolving credit facilities

Revolving Credit Facilities – A revolving credit facility (aka a ‘revolving credit line’) is credit that is consistent and pre-approved and allows you and your business to access its working capital when you need to. Terms may vary, however a revolving credit facility but you will have a credit limit in the same way you would a regular overdraft or credit card.

Business cash advances

Business Cash Advances – this is a type of lending based on future revenue, most commonly known as a merchant cash advance, revenue-based financing, turnover loan, or revenue loan. This cash advance is different to a regular business loan because instead of having a term, interest rate, and outstanding debt, cash advances essentially sell future sales to the lender at a discount.

Fast business loans

Fast loans are just that – loans that will get you the cash you need in hand as fast as possible. (**Would you put the thing about funding options’ enquiry to money in the account statistic in this or no because of the new brand?) Generally speaking, how fast a loan can be processed is based on how prepared the applicant is with what the bank requires when they apply; if you have the access to your accounts and forecasts and can get these quickly, you will get the loan within hours or days instead of weeks.

Short term business loans

Short Term Business Loans are specialized loans for short terms, between 3 months and 2 years. Loans with terms of longer than 2 years are considered medium-term or long-term. If you’re in the market for an even shorter term of loan, it’s worth looking into revolving credit facilities or other overdraft alternatives.

Small business loans

Loans for small businesses – some lenders provide loans to small businesses exclusively. In the past, it’s been difficult for an SME to get a loan from a high-street bank, but due to the vast amounts of alternative finance available in the market today, there are lots of options.

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