Instalment Loan Options for First-time Small Business Owners

In starting a business, you will need a significant amount of money to fund it. Some can afford to do it with their funds, but most aspiring entrepreneurs can’t. Hence, we rely on loans to finance product or service development, manpower, and inventory until we can keep the business afloat. One of these loans is instalment loans.

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Also known as term loans, instalment loans are the most direct type of loans offered, and can be utilized as working capital for business expansion purposes that you can pay off in monthly instalments.

Read more to understand installment loans and how it is beneficial for business.

What are instalment loans? 

Instalment loans are simply loans that are paid in fixed amounts over a specific time, which varies depending on the instalment plan, which ranges from two to twenty-five years. Each payment goes in deducting a portion of the principal (Amount of money you borrowed) plus interest.

Long, medium and short Instalment loans

In business, instalment loans vary depending on the business style and the amount to be borrowed. Thus we have long, medium, and short business loans.

Long-term loans have instalments that you’ll carry for an average of six years or more. On the other hand, medium-term loans have two to five years, while the shortest instalment loan takes an average of two years.

Short-term loans refer to an instalment plan that carries a one-time fixed fee instead of adding interest to longer-term loans.

Consider that long term loans add interest because they take a significantly longer time to be paid in full and considered higher risk. Businesses with substantial collateral and positive records have the highest chance to obtain long term instalments.

Considerations in Taking a Business Loan 

Careful consideration is needed when applying for an instalment loan. Ideally, you have to make sure that you can cover the added fees and expenses of repaying the said loan. Take note that getting a loan that you can’t pay on time is very detrimental to your financial, mental, and emotional health.

Hence, there are things you may need to check before signing that contract; these are the Number of payments, loan term, interest rates, restrictions, and applicable fees. It is crucial to keep track of these details to negotiate and agree to a favourable loan instalment for both parties.

In this way, you can adjust your payments should the need arises and possibly shorten the loan term if the business is going smoothly. It is recommended to pay higher amounts and try to reduce the loan terms quickly as the longer the loan instalments are, the higher interest rates are going to be, thus spending more than what you’ve borrowed in the first place.

Luckily for us, we have different options in applying for instalments curated for flexibility and security for new business owners, here are the following examples of loan instalments which you can pick from.

  1. Line-of-credit loans: A type of loan fit for small-business owners, these are used mainly for the working capital, including inventory and operating costs, as well as payroll when needed. This protects the business from emergencies and slow cash flows. This loan is best suited for low-risk cash advancements since they provide the lowest interest rate.
  1. Instalment loans: These types of instalments are suited for various reasons; you can pay off your loan in monthly installments using this. You will immediately receive the amount requested upon signing the contract, and its interest and payment will be calculated up until the last payment. 
  1. Secured loans and unsecured loans: Instalments may also come in two forms, secured and unsecured. Unsecured loans are loans that will not require collateral or a subsequent payment, these loans typically given to businesses with an excellent track record.

These loans provide reasonable interest rates and flexibility, but they are hard to obtain for first-timers since they would need a track record for your business, so naturally, you might be approved for a secured loan.

Secured loans, on the other hand, offer loan contracts with attached collateral and have a generally lower interest rate than unsecured loans. These loans are useful and fit for new business owners. You can use your property, vehicle, or an item with the same monetary worth as the requested loan to be approved.

  1. Other loans: Other banks and lending institutions have their own set of business loans, each with its varying instalment contracts. Take note no matter how different loans may be; there are always things to be considered, such as the interest rates, payment schedules, collateral agreements, and approval requirements.

Takeaway

Loans can help you uplift your financial health but always take heed in selecting investments. Make sure the loan you’re going to choose is something that favours you, realistic and attainable with regards to payments. Choose and take considerations in all aspects and have confidence with yourself and with your business.

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