How Is A Business Loan Different From A Mortgage?
Posted on: 2 February 2023
Are you starting a business or expanding your current one, and you are in need of some cash to do so? If you are only familiar with borrowing money based on your previous mortgage, it will help to know the main differences between these two types of loans.
Business Loans Are For Business Expenses
The main way to look at a business loan is that you will be using the money strictly for business purposes. This includes things such as money to purchase new equipment and inventory, money to simply run the business with your day-to-day expenses, or money for construction purposes to make changes to the business.
One thing to keep in mind is that the lender is going to ask you about why you are in need of a loan and want to make sure that you are using the money in some way that is going to allow you to repay the money borrowed. Some lenders are going to restrict the use of a business loan so that it cannot be used to purchase real estate; in that situation, you may be better off with a mortgage.
Business Loans May Or May Not Be Secured
A mortgage is going to be a secured loan since you are purchasing a home, which means that the loan is secured with the property you are buying. This helps keep the interest rate low because the loan is very low risk to the lender.
However, a business loan doesn't necessarily have to be secured. The loan depends on your current financial standing and how risky the lender feels you are as an individual. This means that the interest rates can be higher than those types of loans that are not secured. Even if you are using the money to buy equipment, that equipment is typically specialized toward your business and has a low resale value, so it's not as low of a risk as a mortgage.
Business Loans Are Approved At Different Rates
The process of getting a mortgage approved can take one or two months for the loan to pass through the underwriting process. A business loan has a variety of different timelines when it comes to being approved, which is mainly based on how much money you are borrowing. A small business loan will not take nearly as long as a mortgage, and may only take a few days to get the money you need.
Contact a local loan service to learn more about business loans.
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