Starting a small business is an exciting process, there are many legal and financial requirements to go through but the end result of owning your own business is a wonderful feeling of achievement. What most new business owners have trouble with is financing their new business, personal savings only can go so far. Many new business owners look into start up small business loans for their financing needs. This type of loan is offered as unsecured and secured, the main difference being one requires collateral and the other does not.
What is a start up small business loan?
A start up small business loan is a type of loan provided to a new small business by a bank or another lending institution to finance their businesses start up costs. Start up small business loans often are offered as secured and unsecured loans.
An secured start up business loan required collateral, down payment or a cosigner as security on the loan, if the business owner fails to meet the payment agreement the collateral will be seized or the cosigner will be held responsible. Secured start up loans often have interest rates starting around 3%. For those businesses with the collateral, finances or a cosigner this can be a more cost effective way of getting the start up money needed for their business.
An unsecured start up business loan does not require any collateral, down payment or cosigner. The lender offers this type of loan to new businesses with good credit history. The interest rate on unsecured start up business loans is often much higher than a secured loan, averaging 6%. While this is a great option for businesses with not security options it can cost more in the long run.
How to get a start up small business loan?
- Find a lender that offers this type of business financing
- Make sure that your business meets the lenders requirements
- Submit an application
- Negotiate the terms and conditions of the loan, if possible
- Sign the contract and set up a repayment schedule
It is important to remember that as a new business there is no guarantee of success. Remember to make sure that you, the business owner, can afford to meet the repayment agreement regardless to business success.
Chris Fuller went to the University of South Florida and has worked in the financial sector for over 20 years. He has extensive experience in all aspects of personal and small business lending, from personal loans, equipment finance to cash flow based solutions for small mom and pop businesses, and large corporations.