Whether you’re launching your small business, trying to expand, or just handling day-to-day operations, you may find yourself in need of more funding. If you don’t have enough money saved up to cover what you need, there are a few loan options to consider.
Banks and Credit Unions
Business loans through banks and credit unions aren’t easy to get. You may need one or two years of financial history records for your business just to meet the financial institution’s minimum borrower requirements. Most will also require that you have a good to great credit score.
But there’s a reason for those strict lending requirements – banks and credit unions almost always have the lowest interest rates on their loans, so you can save quite a bit of money if you get a loan through one of them. If you’re a customer at a bank or credit union, start your loan shopping there, as they know you and will want to keep you satisfied as a customer.
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Around in the United States since 2006, peer-to-peer loans are loans funded by private investors who make a return on the interest that you pay. You apply for a peer-to-peer loan through an online marketplace, and the company that facilitates the loan posts your listing and charges a small fee for the service.
There are still minimum borrower requirements when you go this route, but they usually aren’t as strict as they would be through a bank or credit union. Interest rates are moderate, although they depend heavily on the risk score that the site assigns you, which it bases on your financial information, such as your income and credit history.
Once your loan request goes onto the marketplace, it’s up to lenders to decide if they want to invest in your loan or not. If your loan reaches a set funding minimum, you’ll get the money.
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There are quite a few online lenders that issue loans the same way a bank would. Like peer-to-peer loans, the borrowing requirements with an online lender aren’t as strict as they are with banks, and the interest rate you pay depends on your financial profile.
There are quite a few companies on the market that offer short-term loans, with how the loan works depending on the type of loan you obtain. A title loan is a secured loan where your car is the collateral, which means the lender can repossess it if you don’t pay. Payday loans are unsecured loans without any collateral attached.
These types of loans have a couple things in common:
• Extremely high interest rates, with the annual percentage yield (APR) often exceeding 300 percent
• Short terms of two weeks to a month
• High approval rates with low minimum requirements for borrowers
It’s best to only use these types of loans as a last resort. You end up paying too much in interest, so any alternative loan option is probably going to be better for you financially.
Which type of loan is right for you? Check out banks and credit unions first to see if you can get a loan with a low interest rate. If you don’t qualify, give a peer-to-peer loan marketplace or an online lender a try.