When you’re looking for finance for your business, a loan is one of the most popular options. However, before taking out a business loan, it is important that you fully understand what they are and how they work.
Here, you’ll discover everything you need to know about business loans before deciding if they are the right option for you.
What is a business loan?
Business loans work much in the same way as personal loans. However, they are offered solely to businesses. Some lenders offer loans to start-ups and smaller businesses, while others focus on providing large sums to established businesses.
You can get both secured and unsecured loans too. Secured loans often use the businesses premises or assets as security. Unsecured loans aren’t secured against anything, making them a safer option.
When taking out a business loan, you’ll pay it back monthly over a set period of time. They can be used for a wide range of reasons too, from buying extra equipment to expansion. You could use small business loans to improve your marketing strategy or invest in new stock. Whatever you need the funding for, there is a business loan to suit you.
When should you use one?
We briefly listed some of the ways a business loan can be used above. So, let’s look a little more into some of the most common reasons to take out a business loan.
Expansion tends to be the main reason people take out a business loan. Having a lump sum to help you invest in better equipment or extra business premises, can help the company to grow. If you’re wanting to expand the business but you don’t have the funds needed, a loan could help.
To manage cash flow is another reason to consider taking out a loan. Small short-term business loans can help to tide you over when needed. Other popular reasons include to manage inventory, consolidate multiple loans and to invest in better equipment.
The importance of reading the small print
If you do decide that a loan is right for your business, it’s important to read the small print. There are often additional fees and terms and conditions you need to be aware of. Skimming the small print could mean you end up with a loan that isn’t right for your business.
As you can see, business loans can be a great option for a number of reasons. However, it’s important to make sure you’re choosing a lender you can trust.