Thanks to secured business loans, it’s now easier than ever to own and operate a business–to become the entrepreneur you’ve always dreamed of being. Some companies even offer secured business loans online. First let’s back up and discuss the ins and outs of business lending.
Loans come in a number of different varieties ranging from guarantor loans to personal loans to commercial loans to totally unsecured loans and everything in between. This article is going to limit the discussion to the differences between unsecured and secured business loans.
Unsecured vs. Secured Business Loan
The distinguishing factor between secured and unsecured loans is the presence of collateral. A secured loan, as you probably guessed by now, is “backed up” by collateral. Think of home loan with a mortgage (no, the loan and the mortgage are not the same thing!). The mortgage provides the bank or lender with collateral. The existence of collateral reduces the riskiness of loans and allows borrowers to negotiate for better business loan terms.
Collateral does not have to be real estate. Equipment, accounts receivable, inventory, fixtures, furniture, and just about any other type of asset can be used to collateralize a secured business loan. Having collateral allows borrowers to extend loan terms and lines of credit up to 30 years with very low interest rates. That type of business financing allows entrepreneurs to leverage their assets for optimal growth. Loan amounts vary anywhere from $25,000 to more than $1,000,000. Think of how much growing your business could do with that kind of capital!
Business Loan Interest Rates: Fixed vs. Variable
Don’t get too excited just yet, because there’s a catch. You have to decide what type of commercial loan interest rate you want applied to your business loan. You have two choices: A fixed interest rate or a variable interest rate. The variable will be tempting, because it’s likely to be much lower than the fixed rate. But be careful. The pros on Wall Street rarely get the interest rate predictions right, so it’s unlikely that you’ll do any better on judging the cost of your secured business loan with a variable rate in place.
The best advice is to anticipate the expense of the fixed rate and try to make it work. That’s a calculated risk. Business success is all about taking calculated risks and knowing your exposure. Plus, you’ll sleep better at night knowing that some crisis in Asia or elsewhere in the world isn’t going to make your interest rate skyrocket and leave you with a mess of unanticipated interest expenses on your business loans.
A secured business line of credit is part of many small business plans. From the moment you make the decision to become an entrepreneur, it’s important to know how you’re going to finance operations, equipment, and inventory. A secured business loan just might do the trick!