When it comes to Business Loans, there are a lot of terms you need to know. And if you’re not sure what they mean, that’s a problem. Fortunately, our team of loan experts has put together a list of the most commonly used terms when it comes to getting a business loan.
Capital
Capital is Business Loans to start up or expand a business. It’s usually used to buy assets that will generate revenue and pay off debts.
For example, if you need to buy new equipment for your business, capital can help with this purchase. But it’s not just about buying stuff—it can also be used for long-term investments like building buildings or purchasing land for future development (which we’ll discuss later).
Working Capital Loan
A working capital loan is a short-term loan that you can use to pay for day-to-day expenses. It’s typically repaid within 12 months, and it’s secured by the cash flow of your business.
It’s important to note that while this type of loan may be useful in certain situations, it’s not always necessary or even possible for all businesses; some industries simply don’t have enough revenue or profits to make up for their own capital requirements (e.g., real estate).
Secured vs unsecured
Secured Business Loans require collateral, such as a second mortgage on your home or vehicle. Unsecured loans do not require collateral and are usually more expensive than secured ones.
However, some lenders will offer an unsecured loan with better terms if you have good credit history and can prove it through income tax returns or pay stubs.
The terms of the loan are determined by how much money you need to borrow and how long the loan will last (the term). Your lender will also factor in your interest rate when deciding whether or not they want to approve your application for a business loan.
Personal Credit Score (and how to build it up)
The personal credit score is the numerical representation of your overall financial health, based on information from credit bureaus. It’s used by lenders to determine how likely you are to repay Business Loans.
The three most important factors in calculating your personal credit score are:
- Payment history: How well you’ve paid back loans and how many times you’ve been late paying them.
- Credit utilization ratio: How much of each type of account (mortgage, student loans, etc.) has been used up by other types of accounts like savings or car payments; if it’s too high (more than 30% over 30 days), that could hurt your ability to borrow money in the future because lenders will consider it risky behaviour and charge more interest rates when they give out loans.
Conclusion
We hope you’ve found this guide helpful in your quest to understand the different types of loans available to entrepreneurs. We also recommend taking a look at our list of the most common business mistakes people make if you want a complete picture of what it takes to be successful in business!
