If you are planning to start a business but do not have enough money to make it happen, you might want to consider taking out a business loan. This type of loan is common among business owners, especially those who are in the process of expanding their business or improving their products and services. Often, small business owners are the ones who opt for this kind of financing, as they do not have access yet to equity and debt markets that will help finance their business.

Put simply, a business loan is borrowed capital that business owners can use for expenses or expenditures they are unable to cover with their existing money. For instance, business owners can use this loan to pay for their employees’ salaries. They can also use it to fund new company supplies and equipment, or fund new business projects.

Also known as a commercial loan. a business loan can be viewed similarly as that of a personal loan, with the main difference being that the owner of the loan is a company or a business. When applying for one, a company has to  explain in detail how the money will be used specifically. The lender (financial institution where the money will be coming from) will want to have a detailed report on how the loan will be used. At this stage of the loan application, impressing the lender will be a major goal. The more impressed the lender is, the higher is the possibility of the business loan being approved.

Before taking out a business loan or being granted one, it is important  that business owners fully understand how this type of a loan works. They should also be prepared for whatever requirements or collateral the loan company will ask of them once the loan is granted. Business owners can choose between two common types of business loans. The most common type is one where owners can take out a loan from the bank. However, banks nowadays are tightening their policies when it comes to loans (as a result of the country’s economic downfall) so it might be harder to go for that traditional option. If one of the business owners own real estate, then they can opt for a home equity line of credit which is the other common type of business loan. In terms of interest rates. lenders can offer either a variable rate or a fixed one. A variable interest rate will depend on a number or determinants while a fixed interest rate will remain the same all throughout the period that the loan has to be paid. In terms of the loan duration, lenders and owners will have to agree on whether the payback period will be for several months or a few years, whichever is fair for both parties.

Whichever type of loan these business owners decide to go for, it is always better to check out all possible lenders, and then choose the one that can give them the best possible terms for a loan.