Regardless of how well you follow saving tips and manage your money, you may still need a loan. Before applying for a loan, whether for personal or business purposes, it’s a good idea to get familiar with the different options available.
If you’re starting a side hustle or want to expand an existing business, consider a business loan, but if you need a loan to fund a personal need, you can apply for a personal loan.
When you need a loan, your first step will probably be to go to a bank or lender’s site to apply, but on the website, you will find different options, each with its own terms, and sifting through them can be confusing, so let’s break them down.
‘You need money to make money’ is a cliche saying because it’s true. You may have heard a ton of rags to riches stories, but the truth is, it’s easier to start and grow a business when you have a decent amount of capital. If you want to get your business idea off the ground or have a small business that needs extra funds to grow, many business loans are available to help you. Some popular business loans include:
Term loans are probably the most common type of loan, and you can apply for this loan at a bank or online. Online lenders typically process term loans faster than banks, so if you require a loan quickly, it’s best to apply online. The downside is that the cost of a loan from an online lender can be higher than that of a traditional bank, so shop around before making a decision.
Financially sound small businesses qualify for term loans. The amount you can borrow varies and can be up to about a million dollars. Interest rates are fixed or floating, meaning they fluctuate according to the bank rate.
The repayment period can be short-term, medium-term, or long-term.
Line of Credit
A business line of credit allows you flexibility in how much money you access. With a line of credit, you can get approved for a certain amount, but you only withdraw funds when needed and are only charged interest on the amount you take.
It’s an excellent option for seasonal businesses or business owners who only need short-term loans. While a business line of credit gives you control over your money management and the power to withdraw funds in an emergency, it may come with added costs like withdrawal and maintenance fees.
Microloans are typically offered to start-ups and business owners from disadvantaged backgrounds. These loans are provided by non-profits and mission-driven leaders passionate about uplifting and developing businesses that cannot get funding from banks and other traditional lending institutions.
Microloans are smaller, usually capped at around $50,000 but are low cost, and depending on the lender, they can also offer other valuable services like training and consulting.
Since these lenders aim to develop financially disadvantaged communities, not everyone is eligible for this loan.
A personal loan gives you money to use for anything, including your business. Still, other common uses are to pay for unplanned emergencies or planned purchases that are out of your budget, such as a new car or vacation.
Your credit score plays a massive role in your ability to secure a personal loan. If your credit rating is good, meaning it’s 660 or above, you can get a loan from a traditional lender with a low-interest rate and reasonable terms.
Several factors are taken into account to work out your credit score, including:
- Payment history
- How much money do you owe
- The credit you have available compared to how much you use
- The mix of credit that you have, for example, you might have a home loan, auto loan, and personal loan
- Any new credit you’ve received or applied for
Many young adults who have never borrowed money before might be shocked to discover that their credit score is low. The reason is that your payment history accounts for the largest amount when determining your credit score. Lenders want to see that you pay back your debt responsibly each month until the loan is paid off, so to improve your credit score, you need to have some debt. More often than not, as people age, their credit score improves, provided they borrow money and repay it.
Bad Credit Loans
If you need cash and your credit score is low, don’t panic. While you are unlikely to secure a loan from traditional lenders, online lenders like CreditNinja offers poor credit loans. These loans can help you improve your credit score, provided you pay back the loan within the payment terms.
A bad credit loan is a good choice if you need money quickly and the application and approval process is easy. The most convenient way to apply is to go on a network lender site. You only have to submit your application once, and it’s sent to various online lenders. Each lender will send you a loan offer that you can review and then select the one with the most favorable terms.
A popular loan available to folks with bad credit is the payday loan. These loans are unsecured, so you don’t need to provide collateral. To apply, you must be eighteen or above and have a bank account. You must also provide your address, cell phone number, and proof of income. If you meet the requirements, your loan can be approved within minutes, and you can get the money within a day.
It may be tempting to apply for this loan, especially if you need the money for an emergency, but think carefully before taking it. Interest rates on payday loans can be exorbitant, and the payment terms are short – usually two to four weeks. If you cannot repay the loan, you have the option to roll it over, but it results in additional fees and interest. If you’re not careful, you can get stuck in a debt cycle that is extremely difficult to escape, so only take out a payday loan if you’re sure you can repay it.
- Nerdwallet: 10 Types of Business Loans
- Forbes: Best Online Business Loans of 2022
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
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