Similar to home equity loans, equity financing business loans are a potential source of funding from banks and lenders who might already own property or real estate. You don’t necessarily have to own it outright, as the lender can actually take into account how much equity you own at the time of applying.
How Equity Financing Business Loans Work
Just like with any other type of business loan, you should be prepared to provide your potential lender with a business plan as well as have them evaluate the property that you’re intending to use on collateral for securing the loan.
Since banks and lenders have collateral in play from your business which provides them with added security just in case things don’t work out. With these types of loans, you will find that the terms can be a little bit more flexible and interest rates to be lower.
As far as the terms are concerned, there are fixed-interest and variable-interest options that are usually available depending on what’s offered by your lender. This is something that will take a little bit of homework to ensure that you choose the best option for the future of your business.
The Advantages of Equity Loans for Businesses
Whether you have a new business or you can’t get your loan on the amount you need to really grow things, equity financing business loans can provide you with great benefits such as:
· A great way for startups to get the funding they need.
Since this poses less of a risk to those who finance you, lenders will usually overlook the fact that a business might be in its beginning days. Whereas with unsecured loans, new businesses could face disappointment since they could be denied due to the risk they pose for banks.
· Lower rates are usually available due to this being a secured option.
If you default on your loan, it’s no big deal to the lender as the property you used to get your loan can be used to get their investment back. This means that they’re also willing to charge a lot less for financing.
· Using your business’ equity could get you more than other forms of financing.
The traditional route to business financing has been known to come with less funds than a business needs to fund itself, whether it’s for working capital or expansion. Equity financing business loans could provide you with more if your property has enough equity to make it happen.
Think of this as a way to establish a relationship with your lender while getting the loan that you need to really take things to the next level. It’s a great option for businesses who have something that they can offer for collateral and it could be more appealing than other financing options.