What’s the difference between a secured startup loan and an unsecured startup loan?
There are two basic options with startup loans – secured and unsecured.
You need to put up assets that you own as security (called collateral) to the lender for a secured loan.
One of the most common ways to do that is via a caveat loan. You can’t sell the asset you put up as security while the caveat for the loan is in place.
Property is the preferred form of collateral security for most lenders.
An unsecured business loan on the other hand doesn’t require you to put up any security for the lender. This type of finance is harder to get.
It’s also important to understand that secured business startup loans have lower interest rates than unsecured loans.
So if you do have assets you can put up as security, you’ll pay less interest.
What’s the cost for a startup business loan?
Interest is obviously the major cost of any finance, including startup business loans.
The good news is that interest rates in Australia are currently at record lows, so it’s a good time to borrow.
With the economy still recovering from the effects of the COVID-19 restrictions, interest rates should stay low for at least the next few years.
But it’s still important to get the lowest interest rate you can for your startup business loan.
The less you pay in interest, the more money you’ll have to invest in your business to help it to grow.
When you take out your loan, if you can afford to pay it off earlier than your scheduled term, you’ll also pay less interest.
However, interest on a startup business loan is fully tax-deductible, so there’s a tax incentive to borrow.
Another cost factor to consider is loan fees. Banks typically charge ongoing loan fees that private lenders don’t.