Business loan policy – What You Need to Know
How much can you borrow? What fees apply? What kind of documentation must you provide? These are the kinds of questions you should know how to answer before starting the loan application process. Here, we discuss what you need to know about business loan policy in the United States and how to navigate it successfully.
What are loans?
Loans are a way for businesses to get funding for projects, operations, or purchases. A business loan is a type of debt financing, which means it’s borrowed money that must be paid back with interest. Business loans come in many forms including lines of credit and commercial mortgages on buildings. Small businesses can sometimes get business loans by using their accounts receivable (the money owed to them by customers) as collateral.
How do they differ from bank accounts?
We’re talking business loans, not bank accounts. Business loans are designed specifically for businesses, while bank accounts are designed for consumers who want an alternative to credit cards. Business loan policies differ from those of bank accounts because they take business size and cash flow into account when determining eligibility; that is, a small business owner with exceptional cash flow may be eligible for a much larger loan than she would if applying with a similar-sized company with bad cash flow or undercapitalization.
Why should you get a business loan instead of keeping money in the bank?
One of the most common questions I get from business owners who’ve been turned down for a business loan is why they should bother looking for other financing options. After all, if one bank doesn’t want you as a customer, why would another? The reality is that it can be very difficult to find an unsecured personal loan or line of credit if your credit score isn’t high enough.
Business Loan vs. Credit Card: Which is Better?
Often times business owners will use a credit card to fund their business ventures. While using a credit card may seem like an easy and convenient way of getting access to cash, there are several downsides. If you’re unsure whether or not you should use a business loan or a credit card, here’s some information that can help. First, let’s start with the basics—what is each? And what are their main differences?
Interest Rates on Business Loans
Business loans are typically available at lower interest rates than personal or home equity loans. This makes business credit cards and other types of business financing attractive options for businesses seeking financing. The type of business that you run also factors into which type of business loan you should choose. For example, certain businesses, such as those in an industry considered higher risk, may need a high-interest business loan more than others because banks are less likely to offer them a low-interest alternative like a traditional bank line of credit.
Other Important Factors to Consider
Although you may not realize it, there are many tax considerations that should be taken into account when applying for a business loan. The first is whether or not you can deduct interest paid on a business loan from your taxes. If you borrow money from friends or family, only interest paid on loans up to $10,000 can be deducted from your income. Any other money borrowed must go through a traditional bank or lender and is non-deductible.
Take it from renowned business guru Paul Hawken, who told Forbes recently that 80% of businesses fail because they fall victim to their own policies. Keep your startup on track by understanding what is and isn’t covered under your business-loan policy, and prepare for ways that you can avoid any potential pitfalls. The best time to think about business insurance policies is before you start using them.