When an entrepreneur goes into business, it is assumed that there is already a solid business plan in place when it comes to its operations, expected cash flow, and other business aspects needed to run the business in an orderly manner and with income in mind. Besides, nobody goes into business just to lose their investment and hard-earned money.
Possible losses, bad debts, and other unexpected kinks in the business are to be expected so the business owner must always be up on his or her toes when these things happen. To help business owners with their business setbacks and further expanding business assets or for additional capital, banks and other financial institutions are ready to help and assist those who might be needing their products and services, which include, but are not limited to, offers of short term business loans, regular business loans, secured business loans, and private mortgages.
Over the years, processes involved in the granting of business loans have been standardized with more stringent measures in place. Banks strictly adhere to ensuring that applicants have good credit scores and standing to keep the banking and loans systems stable and liquid. Even though both banks and financial institutions have already diversified and improved their product offerings for all types of business owners to help the businesses expand and thrive, most small and medium enterprise business owners find it hard to avail of these business loans due to restrictions and stricter procedures.
So, what does a business owner have to do to secure business loans for commercial purposes? Banks offer regular business loans with low interest rates, fees, and longer repayment schedules. To avail of these business loans, business owners would have to show proof and documentation that they will be able to repay their loans on time. Banks also offer secured business loans that would entail you to get a loan tied to collateral security. In general, the collateral security for secured business loans may be in the form of:
1. Personal real property, such as your own house;
2. The fixed assets of the business such as, but not limited to, building, equipment, vehicles, and inventory;
3. The company’s accounts receivables; and
4. The entrepreneur’s other business assets were deemed fit.
Banks may also offer private mortgages and short term business loans. However, expect that you will be asked for several documentary requirements that you would need to comply with since these banks have stricter processes for these types of loans for business owners. As previously mentioned, secured business loans from banks would also bear lower interest rates and fees compared to lending institutions when granted. And because banks would have to go through the rigid process of reviewing submitted documents for their decision on your application, it may take several days before you are informed whether your application for business loans have been approved or declined.
Because of the stricter processes by banks, business owners, especially small and medium enterprises, would prefer to go to financial institutions that cater more to this group of business owners. Aside from the fact that most of these private lending companies have brought their screening and approval process online, short term business loans and other business loans are usually funded within 24 hours after approval. These steps make it easier for entrepreneurs to know right away the status of their application and are able to plan their next moves for the business in a shorter period.
Aside from secured business loans, business owners may also consider taking out private mortgages or 2nd mortgages on their real property, such as their house or the commercial building for their business, if they own it. Private mortgages are basically contracts between the borrower and the investor to take out secured business loans for business purposes. Although there is a higher risk in terms of the repayment of the principal amount, investors are still quite drawn to private mortgages because of a higher return on the interest rate due to the equity yielded by the property.
For entrepreneurs or business owners with current mortgages, 2nd mortgages may be applied on the current real property to be able to get secured business loans from private lending institutions. Why take out 2nd mortgages on your real property?
First, the entrepreneur or business owner may be able to get a higher loan amount from the 2nd mortgage. This is, again, because of the equity that may be yielded from the property.
Second, although getting 2nd mortgages may mean an increased debt amount, the higher loan amount from 2nd mortgages may enable the business owner or entrepreneur to consolidate other debts and just start paying off just one big debt amount.
Third, private lending institutions offering 2nd mortgages are not focused on the credit history and standing of the individual but rather on the real property’s value. In turn, the application and approval of 2nd mortgages are higher.
With all these hassle-free funding for the business needs of small and medium enterprises made easily available to their businesses by the banks and financial institutions offering them, it will always be a smart and wise move to discuss matters pertaining to business loans with your finance team. Not all business owners or entrepreneurs are equipped with the required financial knowledge and understanding of the possible impacts of taking out business loans to help with the business operations. With these professionals being in the know of the business’s current state in terms of its books and records, their inputs, suggestions, and recommendations on such a sensitive and important matter must be considered by the business owner. The business owner may even seek the recommendation of a third-party accountant to reaffirm the recommendation or even give a different perspective in an unbiased opinion. Furthermore, these business loans, private mortgages, or 2nd mortgages may have served their purpose for the business, but this should not allow the business owner to be overly confident and complacent about the possible effects of these business loans on the overall business operations and cash flow during the repayment period.