Small business start up loan
Earlier, when Mr. Kentucky had a recipe of frying chicken which is juicy in the middle and crispy at the outer, he did not have the idea of setting up his own restaurant. But, later on when no other restaurant was ready to take up his recipe, he then resorted to start his own small business which flourished to become the famous KFC chain of restaurants. Only if he were born in these days, the scene would have been different. Instead of pleading others to consider his recipe, he would have at the first instance opened his own business and in that way, he would have saved more than 10 years of his life struggle. This is what todays youngsters are up to. Todays youth is full of energy and a number of ideas. The generation is so fast that it wants to earn money in a faster pace and the next second they land up on a great idea, they are all set to start their own business. The only hindrance to them in this direction is the arrangement of finances which is quite easily solvable with the advent of loans specially designed to help them in starting their own business .
Loans to start up business can be had in either of the two ways: .
By offering their house or any property as a collateral security for the respective loan, .
Without offering any collateral security. .
The first one indeed is a cheaper source than the second one because the property offered as security offsets the risk to be assumed by the financiers. For example, nowadays, on offering a house as a collateral security, loans can be availed at a percentage as low as 7.5% provided you have a good credit rating. However, one must remember that offering a property in lien has its shortcomings .
First of all, the lien opportunity of house or property does not cover manufacturing homes or co-operatives. .
Higher rates of interest are charged for non-owner occupied properties as the risk of settlement is more in such cases. .
The property that you wish to offer as a lien should be already insured that in any case of casualty, the financiers can claim the insurance funds in return for their loan. .
For states where attorney closing charges are required, the customers may be liable to pay the attorney charges to the financiers depending on the case. .
The most important point to be remembered is that you will have to lose your home or property if you happen to default your agreements and the financiers can proceed towards foreclosure of your property or house which means a lot of financial loss to you along with a lot of agony. So, irrespective of the interest charge, one should offer their property as a lien only when they have the confidence of repaying the loan as required by the agreement. .
There are a different variety of loans aimed at assisting the start up of a business. Namely: .
Debt portfolio which help in purchasing commodity mortgage, equipment for lease, commodity insurance etc. .
Business Asset funding which help in purchasing part or whole of the business, real estate lease purchase, equipment lease purchase etc. .
Specific financial services which help in settlements, land consolidation, special contract purchases, lottery and monetary Awards purchases, Royalty and patent fee purchases etc. .
These loans are available for a period of: .
Less than 30 days .
30days to 1 year .
More than 1 year. .
Here, one needs to understand the difference between a loan and a line of credit .
A loan varies from a line of credit in many ways. A loan implies a fixed lump sum of amount given by a lender which the borrower is supposed to repay in fixed installments within a given time frame. A Line of credit on the other hand is an undertaking by the lender to extend credit to the borrower over a period of time as required by the borrower and the borrower is on any given point of time liable to the extent of the outstanding amount as utilized by him and not to the whole amount as entered into in the loan agreement. Naturally, as a line of credit gives the flexibility of drawing amounts over a period of time, its interest, fees and the net amount payable is comparatively higher than that of a loan. However, the tax exemptions also are higher than that of a loan. Depending on your requirements you may select whether you would prefer a loan or a line of credit. .
Loans have a maximum maturity period of 25 years. Within this time, if you would like to switch over to a line of credit, the same can be done without any extra fee chargeable. The tax deductible on the interest payable depends on the index as determined by the wall street journal. The Annual prime lending rate (APR) is also determined by adding a percentage on the index as proclaimed by the Wall street journal. At present the APR is on an average of 8.5% .
The origination fees for such loans can amount from $100 - $300 depending on the credit amount. Some Financial Institutions offer an interest discount of 1% for auto debit payments through their banks. For auto debits through others banks an interest discount of 0.25% can be availed. .
If it happens that you repay only a part of the full instalment due and it is not sufficient to recover the interest and principal part, first the interest is deducted and the balance principal would be added back to your loan resulting in a decrease in your equity. This method is called negative amortization. If such instances occur frequently, the bank/financier has every right to terminate the contract wherein you may be required to pay the whole amount in one instalment. .
Other instances which can instigate a termination of the loan contract can be: .
Fraudulent or material misrepresentation on the property or house which you have offered as a security to acquire the loan. .
Failing to meet any of the terms as required by the financier viz., non-insurance etc. .
Any action or inaction affecting the banks/financiers security on that property .
These loans are regulated by the lending act which has framed some guidelines which are to be followed by the lender/financier. As the borrower happens to be in a weaker position in a loan contract the lending act has taken the onus to fight for his security. According to the law: .
All the effective APRs, miscellaneous charges, variable rate features and information about the payment terms should be disclosed by the lender prior to the entering the contract and the borrower should be well informed about his liability. .
If in any case, the borrower wishes to cancel the agreement, he can do so within three days from the day the account was opened. If such cancellation occurs, the secured interest should be cancelled and all the return fees including appraisal and application fees should be returned to him. .
Thus one can take up a loan (which is better preferred to a line of credit which charges higher interest) to start up his own business. But just taking up a loan is not the goal. It is only the first step towards goal. The ultimate goal of establishing a wide business depends on the hard work you put in for achieving that goal .
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