Types of Loan to Help You Fund Your Business

Starting your own business is not easy. Even if you have a brilliant idea that could change the world, you still need reinforcements to carry out that idea and make it happen.

By reinforcement, we mean capital.

Let’s face it. Not all of us have millions in the bank. Even if you are earning dollars and working three jobs everyday, your money doesn’t seem to be enough to cover all expenses back home. Surely, you would set aside the money left for emergency instead of funding your own business.

Who do you turn to? Lenders like banks or private financial institutions to apply for a business loan.

Did you know that business loans come in many types?

Read this post to find out the right type of business loan for you:

Term Loan

Term loan is a type of loan, either short or long-term, that helps business owners get necessary funding without using personal funds. This is also ideal for starting entrepreneurs because payment scheme is equally distributed every month. If you plan to get into franchising business, then this type of loan is recommended as well.

You can use term loan for immediate purchases and expenses such as expansion of business, additional working capital, inventory, or construction of your business place among others.

Loan Features:

• Borrow between P100,000 to P20 million, depending on the lender and the security you can offer to guarantee the loan
• Payable in one year to 15 years, depending on your chosen term. Some lenders have a maximum 10-year loan.
• Payment includes both principal AND interest, divided in equal monthly amortizations
• Average interest rate is 7%, although this could go higher or lower, depending on the loan provider

Credit Line

Let’s say the need is not immediate, but you simply want to be prepared just in case you need the money. If that’s the case, then this type of loan is recommended.

Credit line is a type of short-term business loan that you can access whenever there is a demand. The interest, which depends on the prevailing market rate, you pay will also depend on how much you will get from the credit line. You can also borrow up to P20 million.

For instance, you will be given a P5 million credit line, which you can use within one year. On the first month, you’ll get P200K, which will be your Loan 1. The interest you have to pay will be based on the P200K amount. On the third month, you get P500K. This is Loan 2 and the interest charged will be based on the amount you borrowed.

You may or may not use the entire credit line within the year. If you do, then make sure you have enough to cover for the monthly fees. You also have the option to pay off the loan without waiting for the maturity date, making credit line more flexible than term loan.

Depending on your lender, you could also renew your credit line for another year just in case.

Secured vs. Unsecured Business Loan

Both Term Loan and Credit Line can either be Secured or Unsecured.

From the name itself, secured loan means there is a guarantee or security that will serve as collateral for your business loan. This means lower interest rate and you could negotiate a better deal since the loan is secured.

On the other hand, it is a must that you pay your loan regularly. Otherwise, the collateral may be taken from you to pay off the loan.

Unsecured loan does not jeopardize any of your assets. The drawback is that interest rate is typically higher since the rate will serve as your collateral.

Talk to you preferred lender as to the best type of loan for your business. Just in case, Balikbayad is also here to assist you in your financing needs.