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Financing Your Small Business: Which Loan Is Right for You?

If you’re looking to start or grow your small business, you know that as hard-working as you are, blood, sweat and tears only take you so far. Money gives you the necessary resources you need to move things forward.

Whether it’s opening a new storefront or taking a look at a targeted email marketing campaign, everything you do costs money. As a small business owner, money doesn’t always rain down from the sky. At some point as you’re running this business, chances are pretty good that you’ll need to take out a loan. With that in mind, let’s take a look at your options.

Secured and Unsecured Loans: What’s the Difference?

Before we get going, let’s get the lay of the landscape. All of these options fall into one of two categories. The loans are either secured or unsecured.

In your personal life, you may have a loan for your car or a mortgage. These are secured loans. If you continually miss payments on your car or house, they can take it away. These are secured loans. The collateral for the loan is whatever you’re buying with the loan.

Business loans can be secured, too. In the case of a business loan, these are secured by your business equipment, commercial property and sometimes personal assets. The benefit of a secured loan is a lower interest rate or higher borrowing limit.

Unsecured loans aren’t secured by property of any kind. If you default on these, the penalty is having it show up in your credit report. Bad marks may make it hard to get an unsecured loan in the future. Unsecured loans tend to be for things like credit cards, lines of credit, student loans and personal loans.

In a lot of instances, unsecured loans may be for smaller amounts, but you can get your financing faster.

Which Loan Is Right for You?

Now that we’ve gone over the difference between secured and unsecured financing, it’s time to go over which loan is right for you and your business.

Business Loans

Business loans, like those insured by the Small Business Administration, are great for long-term financing. You can borrow up to a fairly high limit if the bank approves your business plan and you can show a likelihood of stable cash flow among other things.

What’s great about these is that you really have the option pay them off over a longer term. This provides you with less shock factor when the monthly bill comes.

The downside is that it’s harder to get approved for these. You have to show a history of cash flow and balance sheets. This is particularly difficult for new businesses. The model of traditional lenders may not be the way to go.

Lenders like RapidAdvance offer a different type of small business loan. It’s shorter-term financing with daily repayments. You avoid the big bill at the end of the month. Your rate and loan amount are based on not only your credit, but also some basic questions about your business and the industry you’re in. They’re also unsecured, so it lowers your personal risk. You’re still responsible for repayment of the loan, but you won’t lose your house or anything.

Line of Credit

Another option if you’re looking for a loan to manage the day-to-day affairs of your business or meet changing needs and expansion is a line of credit.

With a line of credit option, you can be approved for a certain amount of funds and you only pay interest when you draw on the account. This can be an ideal option for those looking for an easier way to handle the everyday expenses associated with maintaining and growing a business.

Personal Loan

Maybe you just need a small amount of funds to get started or to help seed a new initiative. A personal loan might be another good option. This is a quick way to get financing. Instead of relying on business records, your credit score and personal financial records to review.

Like the short-term financing mentioned above, it’s also unsecured. You should always consider your revenues and cash flow though, because all loans need to be paid back.

If a positive about personal loans is quick money, the downside is lower limits and slightly higher interest rates, but your actual business plan isn’t subjected to immediate financial scrutiny.

If a personal loan sounds right for you, you can check out our friends at Rocket Loans.

As with any loan, carefully evaluate the options that make the most sense for you and your business. Now that you’re ready, go forth and build your empire.

photo credit: Für eine Handvoll Dollar 72/366 via photopin (license)

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