Different types of loans

Banks have different types of loans available for small businesses. Knowing the correct type of loan to ask for is essential in getting the bank to approve your loan.There are two types of loans: secured loans and unsecured loans.Secured loans are loans that are secured by collateral. The lender will take a security interest in your property. If you do not pay the loan back the lender has the right to seize your collateral. Most lenders will require collateral to secure a small business loan and they make take a security interest in your business and/or personal assets. Lenders will not lend you more than 100% of the value of your collateral and will usually only lend you 60% to 80% of its value.Unsecured loans, as the name implies, are loans that are not secured by any collateral. Credit cards, while not technically loans, are the most common example of unsecured debt. The lender is loaning you money based on your reputation and credit worthiness. It is very, very rare to find a lender willing to give you an unsecured loan for a new business. They are not willing to take the risk because you have no track record for them to work from. The Typical Loans Banks Will Provide to Small BusinessesUnsecured Credit Lines - Banks and lenders will often provide lines of credit to small businesses. These are generally set as a maximum amount of money you can borrow. The credit line amount and interest rates vary greatly from lender to lender and from business to business. There are generally three factors the bank will look for:1. Does your business have its checking account with the bank?2. How long has your business been in existence?3. What is your personal credit score and your business’s credit history? Most lenders will also provide you with a business credit card in addition to a line of credit.Short-Term Loans - Short-term commercial loans may provide a good source of working capital for your business. The length of these loans is usually no more than three years and the loan will require fixed payments of principal and interest. Short-term loans will need to be secured by adequate collateral and will usually have a fixed interest rate because of the short length of the loan. Long-term Loans - Long-term loans are almost exclusively used for equipment and other asset purchases. Lenders will not lend your businesses money for longer than three years unless the loan is for a specific asset purchase or for the refinancing of an exisitng asset. These loans are secured by the assets being acquired and will generally have various loan covenants such as interest rate changes and prepayment penalties associated with them.