What is a Business Loan and How Does it Work?
A business loan is when you borrow a fixed amount for business needs (as opposed to for personal needs) from a lender and agree to paying it back by instalments over a specified timeline. Business loans usually have specific reasons like starting a business or fulfilling purchase orders.
Even if you have the money, you might choose to take out a business loan. Reason being that you may want to save your cash to run your business instead of using it to buy costly assets. By doing this, it can help you grow your business even faster.
Business loans tend to be risker, so most lenders ask for collateral. If your business is just starting and doesn’t have a lot of assets, you might be required to pledge personal assets like your home as collateral. This provides the lender with the added reassurance there’s a good chance it will be paid back if your business runs into financial trouble.