hen it comes to investing in your business, there are a few options to choose from. A couple of the most common routes people go through to finance their businesses are getting loans and using credit cards. Both options have their advantages and disadvantages, so we will try to figure out which option is the best for your business.
There are quite a few types of loans to choose from when you are trying to finance your business. Generally, loans have lower interest rates and provide you with more money than you would get from a business credit card, but they are usually harder to get approved.
To make a loan easier to approve, financial institutions require you to have some collateral, an example of this is the home equity loan. With a home equity loan, the loan is secured against the value of your home. With this type of loan, you will receive a lump sum payment at a fixed interest rate, which you will agree to pay off over a certain period of time. The disadvantage of this type of loan is that you can lose your home to foreclosure, if your business fails and you are unable to make your payments.
If you don’t have any personal collateral, but you have someone that is willing to put down some collateral for you, guarantor loans are another way to get financing. A guarantor loan requires you to have someone cosign the loan with you, this will not require you to put anything up, but the guarantor agrees to pay whatever is owed on the loan if you default on your payments. This is a great way to finance your business, because you will be able to make your payments if it is successful, and if it isn’t, you can set up a convenient payment plan with your guarantor, without having to worry about losing your home.
Getting a business credit card is more convenient for a lot of people, because they are more likely to get approved, making them easier to get. They are more popular with a lot of small business owners because you can use and repay the credit line as much as you want, as long as the minimum monthly payments are made on time, and you don’t exceed the limit. Another advantage of business credit cards is that a lot of them come with offers of 0% APR for up to a year or more, which means you don’t have to pay any interest for the period, which saves you a lot of money.
Another advantage of credit cards is the fact that you don’t have to put up any collateral, so if you are unable to continue making payments on the cards, the lender can’t seize your assets. The disadvantages are that failure to make payments will affect your credit score, limiting your ability to borrow money in the future, and the interest rates are usually higher than a bank loan.
Business credit cards are great for short term use, and small purchases, especially with the cards that offer 0% interest, but in the long term, business loans are your best option, because you can get more money with them, and the interest rates aren’t as high as credit cards.