Different Types of Commercial Business Loans Every Entrepreneur Must Know

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Commercial Business Loans

There are a lot of organic investments that an entrepreneur would have to make at the nascent stages of a business that would only yield results at later stages. However, these investments check the essentials of a business in its roadmap trajectory. Such investments generally need a sizable amount of capital and entrepreneurs generally tend to look for loans for business without security. This helps them get the capital required without having to offer their personal or commercial property as collateral. This also goes a long way for those entrepreneurs who don’t have personal assets to offer as collateral to lending institutions.

7 types of loans for businesses without security that you should know about:

Short-term loans:

These are the most opted loans for business without security. With no property offered as collateral, these loans are generally opted to tackle short-term budget dips. These are generally used for pulling through business emergencies or meeting unplanned bumps in the businesses finance.
The term for these loans generally ranges between 3 to 18 months and the rate of Interest start as low as 10 percent per annum.

Vehicle Loans:

Vehicle Loans

If you have a manufacturing business or are a service provider in the logistics space, taking a loan for purchasing a vehicle goes a long way. Not only do these loans for business for security detach the need for collateral, but also aid cuts costs for taxation purposes.  These loans can be used for purchasing new vehicles, existing vehicles, and tackling other expenses in the working capital’s bucket. The rate of interest and tenure vary according to the credit score of the applicant and the eligibility criteria too for these loans are not very rigid, meaning, lending institutions are happy to make exceptions according to the nature of the relationship with the applicant.

Industrial equipment loan:

If your line of work requires you to own industrial equipment for its survival, it’s imperative that you opt for a loan for your business without security, as it offers up to 100% loan on the amount of the equipment. These loans help you buy the equipment required without having you to dip into your working capital fund to make ends meet. Just like car loans, these unsecured business loans, do not expect any collateral and are levied at an interest rate of 7% to 30% with a tenure of 1 to 5 years.
That said, like any other loan for business without security, the metrics vary from a case to case basis and rely upon the credit score of the applicant and their relationship with the bank.

SBA:

Small Business Administration (SBA) isn’t a type of unsecured loan but is a guarantee or a word of trust that the government gives to the banks or lending institutions that the full amount or most of the money would be paid back by the applicant.
These unsecured business loans generally offer an interest rate as low as 5% and have a long repayment range which goes as high as 25 years.

Given the nature of the loan and the involvement of different governing bodies, the processing time for these loans is generally high and disbursal generally takes weeks after an application is sent.

Merchant Cash Advance:

Merchant Cash Advance is one of the most expensive kinds of unsecured business loans and is applicable for those kinds of businesses that have their revenue generation through transactions at POS machines. Ex: Fuel stations, Mom and Pop Stores.
These generally offer higher interest rates ranging from 15% to 110% and a flexible tenure.
As a repayment structure, the lender takes a cut of your daily/weekly credit card sales and keeps doing it till the debt is completely paid off.
However, these loans for businesses without security is known to offer quick disbursal.

Business Line of Credit:

A line of credit is a renewable debt generally offered by banks and other lending institutions to applicants looking for loans for businesses without security. These types of loans offer a certain amount of capital in the form of a credit card and the applicant is charged interest for the amount they’ve used. In this type, the user can keep clearing the debt and continue using it for as long as they wish to.
Layman’s comparison to Business Line of Credit is a credit card.
These offer a rate of interest ranging between 7 to 40% with a repayment cycle of 6 months to 5 years depending on the credit rating of the applicant and their transaction history. However, these types of loans for business without security are generally offered to applicants with credit scores that fall in the good and excellent category.

Commercial real-estate loans:

Commercial real-estate loans are unsecured business loans that entrepreneurs use for grasping sudden or unplanned opportunities of business expansion. These loans can be used to purchase raw material for sudden orders, or, for R&D, or for expanding into new business lines or expanding into new territories, or for hiring the right talent.
These loans for ideal for businesses that are not looking to offer any collateral as security. The rate of interest is staggeringly low at 5% and the tenure goes as high as 25 years. That said, these values fluctuate depending on the nature of the applicant.

So, what’s the business loan that checks all the boxes for you? Before, jumping to a conclusion on this, we strongly advise you to choose your needs, see which category your application you fall into and consider your repayment plans. Better yet, you could talk to an expert and they should be able to answer your questions and help you pick a loan for business without security that checks all the boxes for your Micro, small, or Medium enterprise.

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