Loans are collateral or commonly known as loans that require borrowers to pledge assets as collateral to get loans. If the borrower is negligent on repayment of the loan, the lender has the right to sell the asset to pay off the debt. Examples of assets that can be used as collateral are property, savings, invoices, inventory, personal assets, or liens.
For what purpose are multi-purpose loans used?
Guarantees offer security to lenders. Secured loans often have lower interest rates and higher amounts of loan funds. These loan funds are usually used for large-scale investments, such as major renovations, equipment purchases, and expansion to new locations.
What are the types of mortgage loans?
Traditional loans allow you to get a number of loans at the same time, where repayment of loans is carried out in a certain time period with a fixed interest rate. These loans are usually set to be repaid within one to three years. This loan is used to finance various business needs — from hiring new employees, purchasing equipment or business expansion projects.
A credit line or known as revolving credit is the provision of access to borrowers to a number of previously agreed capital. Think of this loan as a credit card; facilities that you can use when needed and the interest rate is only charged to the amount of money withdrawn. This type of loan is best suited to cover short-term and recurring financing needs.
Merchant cash advance
Merchant cash advance or we can know it as a reward is not a loan, but rather an introduction to cash payments in advance obtained based on your credit card transaction. You will get a reward from your credit card provider, where repayment is done by cutting a certain percentage on a daily or weekly basis from consumer payment transactions via credit card. This loan is a financing option that is suitable for businesses with customer payment volumes with large credit cards, such as restaurants and retail traders.
Equipment Procurement Loans
Loans for equipment procurement are financing options that allow companies to purchase equipment. The loan amount and interest rates must be paid back for a certain period of time based on regular installments. After the loan has been repaid, the borrower obtains ownership of the equipment.
Inventory Procurement Financing
Financing for inventory purposes is a type of independent financing, where borrowers are not required to guarantee assets owned to obtain loans. However, inventory purchased will serve as collateral for loans — which can be in the form of loans, term loans or short-term loans.
The borrower submits a sum of money to buy inventory, which will be repaid along with the interest rate. Financing can be in the form of credit lines, or short-term loans.
Invoice Financing (Invoice)
Companies can obtain financing based on unpaid invoices. This financing can be done in two ways: invoice factoring, which refers to an agreement between a business and a third party company (also known as a factor), where factors buy invoices at a lower price and collect them in the name of the business.
The second option is invoice discount, which is different from invoice factoring, because the borrower retains control of the sales bookkeeping and collection payments – rather than selling the invoice to a factor.
Some tips to help you prepare a mortgage loan application.
Make a solid business plan
A well thought out business plan will show that you have an action plan to grow your business – supported by research, product strategy and marketing and data. In addition, the plan will show the direction of your business to the lender.
Here are some tips for developing a more prominent business plan to help your loan application:
Describe the current plan and past successes: For small businesses — specifically, newly established businesses, it may be difficult to convince lenders of the long-term potential of your business, because future conditions can be very different from current conditions. Some things that can help your request are to explain the strategies that are owned and the success that has been achieved. The main questions you need to answer include: What activities are being carried out now to grow my business? What strategies have worked well for my business in recent times, and how do I plan to use the funds obtained to advance this business?
Know your numbers: Project your finances, such as cash flow, revenue and sales estimates. You must be prepared to explain the flow of income, ongoing expenditure (rent, utilities, and payroll) and financial contributions to your business. You must prepare in detail, for example, if your business experiences seasonal fluctuations. You may be asked about the strategies planned during the period of non-crowded business.
Prepare more than one payment strategy: You should prepare two to three payment strategies as a backup plan just in case the lender does not agree with the original plan proposed. A backup strategy can include things that are not part of your initial strategy, such as the inclusion of collateral for a loan.
Build business existence online
Having an online business existence can help small business owners get external financing. More and more lenders do searches on websites, social media and business reviews to find out more about your business — rather than just assessing your loan application based on other factors, such as operational history and credit profiles. Here are some steps that can be taken to build your digital existence:
Gather positive reviews: Positive reviews are a sign that the business is in good condition, so don’t hesitate to ask your customers to leave positive reviews on Google, social media or your website. This can be done by asking them to leave the review via email notification. The survey conducted by the BrightLocal SEO software tool shows that around 71% of consumers will leave reviews when they are asked to do so.
Build your leadership mindset: Trying to establish relationships with other businesses and influencers in your field, engage in community events and issue well-written opinions can help build your reputation as a leader and show lenders that your company is a leading business and a valuable investment.
What are the small business financing options that I can try?
Small businesses and newly established businesses often lack assets to be pledged as collateral, thus placing them at a disadvantage when applying for collateral loans to traditional banks and lenders.
With the increase in online lenders, it provides a broader range of alternative choices – including unsecured financing solutions such as short-term loans, credit lines and invoice financing. This lender can be a viable choice for small business owners who are looking for external financing because this type of loan offers greater flexibility in loan criteria, a simple process and quick access to funding.