Financing Options for Small Businesses: Loan vs. Mortgage
There are a lot of financing options for business owners these days, such as SBA loans, lines of credit, overdraft funding, and mortgages. Below is a quick look at the two most popular ones among small businesses: business loan and mortgage.
Loan vs. Mortgage
Small businesses looking to secure funds for various business needs such as purchasing equipment, managing inventory, buying a property, or running their daily operational costs can go for a business loan. Some lending institutions might require the loan to be secured against collateral, but it is not always mandatory, and the terms and conditions can vary from lender to lender. Such a funding option can be very beneficial in order to cover any type of unexpected expenses.
Mortgage loans, on the contrary, are required to be secured against any commercial property. The ownership of the property would remain with the borrower, but he/she would have to agree to repay the loan amount in regular installments until the term is completed. Besides, a mortgage loan is approved only if the lender finds the borrower credit-worthy enough to repay the loan, and the property value good enough to cover the amount.
Purpose and Types
A business loan usually opts for the expansion of the business. The borrower does not necessarily need to secure the loan amount with any type of commercial property, especially if approaching online lending for the funds. The loan can be long term, short term, secured, or unsecured. No matter what the type of loan is, online financing would get approved very quickly and can be used for any and all needs of the business.
A mortgage usually opts when a small business wants to acquire, refinance, or redevelop a commercial property such as an office building, a warehouse, a shopping center, etc. Typically, the loan amount would be based on the value of the property put as collateral, with most lenders offering a loan amount that is lesser than the property value. Mortgages can be fixed-rate, adjustable, and reverse type, which need to be secured with collateral.
Rate of Interest
An unsecured business loan can bring into play higher rates of interest when compared to a mortgage loan. That is because it is considered to have a higher risk when the funds are not secured with collateral. Besides, the borrower would need to have a reliable financial history to get the loan approved. Mortgages, as said, would be based upon the value of the property, and if the borrower fails to repay the loan amount, the lender would seize the commercial property put as collateral to settle the funds.