When starting your own business, there are some obstacles that you come across which are necessary to overcome to get your business up and running flawlessly.
Amongst major business startup hurdles, finding the finance to kick start the company is one of the most common and troublesome issues that business owners have to deal. Some owners usually use their saved up personal finance. But those who do not have their own money to spare, have no other choice but to rely on services that offer term loans.
What is a Term Loan? Some of you might not be sure what this means, which is why to let us first start by explaining what exactly is a term loan. A term loan is a loan you can get from a lender after getting approval from them through certain conditions, which also includes interest rates as well. For the loan to be returned, there is a specified period which requires you to repay the debt at fixed intervals in the duration of that time.
Uses of Term Loans
Term loans can be used for any purpose that requires a certain amount of financing. However, you should use them in instances when you know that you can generate enough revenue to pay off the debt. In such cases, you can use them for the following examples.
Raw Product Materials
You will come to find that having enough expenses to buy your product materials in bulk can result in getting discounts and high-class suppliers in return.
Often when you start your own company, you lack the manual labor needed to get the primary job done. For that purpose, loans can help you get the necessary equipment to handle the starting tasks of your business.
Setting up a new business means setting up a place to conduct your line of work and that too requires money.
Most people start off with using a small office space at their own home, but once the business starts growing, you would need to expand your office at some point. Loans can help you with real estate matters to earn your own piece of property.
More Room to Experiment
The initial profit you gain from your earnings is at times entirely used up for the next batch of products and giving salaries to your employees. Hence, it leaves no room for you to use an extra bit of money to conduct experiments to find ways to enhance your sales.
Having a loan can help you to divide your finances with one covering the costs for the inventory. While the other is used to come up with new marketing strategies and applying them to see which one works the best for your next business profit approach.
Advantages of Term Loans
We have talked about some of the examples of why a businessman would require a loan- but why a term loan specifically? Here are some of the advantages that lead people to choose term loans for their financial needs.
Swift Application Process
In most places where you get loans such as a bank, the application process can take up to a couple of weeks and usually the answer isn’t always that favorable.
Term loans are easier to apply for as the whole process takes around three days to complete and you can fill out the forms online within a few minutes without leaving the comforts of your home.
Lower Interest Rates
Depending on the type of term loans that you apply for, each one of them has its own specific interest rates.
The longer the loans are, the less the interest rates are as compared to the high rates you get when you apply for a short term loan which is the type of loan that requires you to pay for the highest interest rates out of all the term loans.
One of the best things about a term loan is that you can get additional bonuses for applying these types of loans.
One bonus factor is that paying on time gives you a really good credit score. This can help you get further opportunities in the future to apply for better loans at lower interest rates. Moreover, term loan interests are tax deductible. Meaning you get a little bit of cash back at the time of full repayment.
Types of Term Loans
There are three kinds of term loans which have their own specific requirements that you need to have to apply for them.
Long Term Loans
Long term or traditional term loans are given by lending institutions. The repayment debt time period for this loan can extend up to 3 to 20 years max. They are great for business construction purposes where you need a good amount of finance to make that all happen and not have to return the loan repayment immediately.
They are also the type of loans that require the least amount of interest rates. However, applying for them is very difficult unless you have a good credit score history and an effective application to show how qualified you are for borrowing the loan.
Intermediate Term Loans
The amount of finance received in this loan is a bit less than a long term loan and also has higher interest rates in comparison to the former. The time period to pay off the debt is about three years.
The lenders are often found through online sources which makes its accessibility easier but also slightly expensive (around 6% to 20% more) when it comes to loans given by the bank.
Short Term Loans
Short term loans are the easiest loans to apply for because investors will be willing to work with you even when you don’t have a good credit score to show up for it.
That is also why they have the highest interest rates and the time duration to pay off the debt is around 6 months to a year. In that case, whenever you need to apply for this loan, make sure you can generate the money needed to repay back the debt as quickly as can to earn a good credit score for better future loan opportunities.