Are you interested in obtaining a business loan?  There are a few aspects of business loans you should consider before approaching the bank.  The most important consideration is business loan rates.  If you have never had a business loan you may not understand how the business loan rates are figured.

Business loan rates are based on your financial history, business history, and the type of loan you wish to obtain.  You might be thinking this sounds a lot like a regular loan, and you would be right.  All loans are based on financial data, the type of loan, and your history.  The difference between a personal loan and the business loan is the third criteria used for deciding the interest rates.  The profits of your business, its financial strength, and the business plan are rolled into the third criteria.  These pieces of information will give a banker the complete picture on your business, and therefore the best loan for your business.

Personal financial history regarding business loan rates is used, typically, for the initial loan request.  In other words when you are first starting out in a business your personal finances will play a part in whether you get the loan.  The lender does not have business history to examine, so they must find the information in a different way.  At this time your credit score, assets, and down payment will be factors in whether you get a great business loan rate.  If the business has no collateral or savings to use as collateral you may have to personally front the loan.  A loan against your house to get money for a business is one way you may need to use for the initial start up costs.

Once the business begins to do well financially and grow its customer base you will find it easier to separate your personal life from the business accounts.  You can then legally incorporate the business and work as a legal entity.  You will also be able to stop placing personal funds into the business, thus limiting your personal exposure in the business.

If you have an established business of three or more years a lender will not look at your financial history.  Instead they will look at the business financial history to obtain a clear look of whether the business loan rates should be higher than the current rates.  The business credit score will be run to determine business loan rates.  Your business credit score can be affected by late or missed payments. If think you will need a business loan in the future you must keep your credit score clear of any issues.

The business plan will be imperative to gaining a loan whether you are a new or existing business.  The business plan will discuss your financial projections, expenses, insurance costs, licensing information and other aspects.  Without a business plan you will not be an attractive entity to any bank.  The loan needs a specific purpose with detailed accounts of the costs the money will be used for.
The above information you provide to the bank lender will go into determining the business loan rates.  There is one more aspect of business loan rates that needs to be discussed.  The type of business loan you hope to gain will have a direct effect on the interest rates.

You have the option of getting a secured or unsecured loan even in business.  A secured loan has collateral in case you have to default on the loan.  Secured loan rates are lower than unsecured rates because an unsecured loan has more risk.  There is a choice of installment or revolving loans.  An installment loan provides a lump sum to be paid with monthly payments.  A revolving loan is more flexible because you determine how much of the loan you actually use.  It is like a credit card.  You have monthly payments, interest, and you choose what you use.  Revolving loans therefore have a higher interest rate.

The term the loan is for will be another deciding factor in the business loan rates.  A long loan tends to have a higher interest rate to compensate for any inflation that may occur.  A shorter loan will almost always save you more money if you can pay it off at the end of the stated duration.