Businesses or financial institutions that lend money with the expectation of getting it back sometimes later are called a lender. The lender will get an interest based on the loan amount. Under the category of the lender, there are banks, credit unions, moneylenders, etc.
Usually, the banks and other financial institutions hesitate to give money for startups and charge a high rate of interest. In most cases, they deny as well. Lenders do not participate in the actual business like the shareholders.
Lenders have no ownership in the business. So they do not face the risk of the business directly. However, they have an indirect connection to the business owners and shareholders and their risk. Lenders come in the first place even before the shareholders in the payment of the money.
Types of commercial loans
- Working capital loans are sought to even out the cash flow.
- Commercial loans are required as industrial loans for short term needs where the collateral is required.
- Asset financing for equipment or machinery or business vehicles
- Mortgages or credit card financing
- Vendor financing
Special types of loans are also there which includes the finance disaster recovery or loans for business start-ups.
The type of lender to suit you will depend upon various factors
- Amount of Loan – The amount of money that you need will have a direct impact on the type of lender. If you need large loans, you might need a combination of many.
- Assets pledged– If you have properties, you can pledge them as collateral for the loan and get better terms. You do not get this benefit if you seek for an unsecured loan.
- Types of assets– The loan that you seek depends upon the asset that you want to purchase. For example, for land and building, it is generally a mortgage and for equipment, it is called capital expenditure.
- Start-up or expansion– It is very difficult to get a loan for a start-up than getting a loan for an already existing business. For startups, you have to consider some untraditional types of loans like a private Licensed Money Lender Singapore. You have to visit the Lender SG site, to know how they work.
- Term of the loan – This is one of the most important factors as it greatly impacts the type of lender you have to look for and also the chances of availability. Some lenders will provide only short term loans while some provide long term loans. So it is important to approach the right one.
Different types of lenders
As discussed above, common lenders include banks, credit unions, and other financial institutions. However, many new lenders are coming up in the market. They are less traditional and they mostly fund small business loans. They are the following.
Peer to Peer lenders
Here lending takes place through an online lending platform. Individuals can borrow from individuals. This business is booming with great profits all over the world. There is also an increase in the number of aspiring money lenders everywhere.
From the very term, you can understand what crowdfunding is. The best part under crowdfunding is that the lenders will not need interest payments. This option even extends a hand to the charitable needs and saves many needy people.
Private money lenders
There are popular Licensed Money Lender Singaporelike Lender.sg and you can visit their Lender SG site for more details. They provide loans to start-ups, small businesses, etc. They do give loans even if you have a bad credit score.
Family and friends
Some organizations help to sort out the financial and personal issues in the context of money. But moving on with a loan agreement can build trust between the parties.
Consumer Protection and business lenders
As a consumer, it is important to know the difference between business loans and personal loans. There are legal protections in place of personal loans but are absent for business loans. The federal government has many laws to prohibit protection and protect borrowers from discrimination.
However, these do not apply to business and commercial loans. For instance, the laws prohibit discrimination based on race, color, religion, national origin, sex, and marital status or age. It is just limited to the individual and has no difference between business and consumer credit.
Organizations to help lenders and consumers
There are dedicated organizations that help both the consumer and the lender. They work closing with the lenders and provide guarantees loans especially for small businesses. They are not the actual lenders but when the lender makes the loan, they will guarantee the loan and agreeing to repay 85% of the loss in case of default.
This helps many budding businesses to grow and succeed in their field. These organizations were created with the sole purpose of helping small businesses and startups.