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Small Business

Business Loan Interest Rates: How to Find Low-Interest Loans

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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Small businesses often require additional financing. From funding equipment purchases to funding renovations, business loans can be put to a variety of purposes. However, interest rates differ depending on whether you are looking for short- or long-term financing.

How are business loan interest rates factored?

Loan amounts and rates are estimated based on your creditworthiness. How is creditworthiness assessed? Banks and many lenders first look at your ability to repay your loan. Businesses need to show that they can meet their expenses while also making loan payments. Managers have to show that they are competent as well, particularly when they are applying for a business loan to start a new business. This is one reason that applicants are sometimes required to provide their resume when making a loan application.

Owners also have to show that they have enough of their own money at stake in the businesses. Business owners are required to demonstrate they have a certain amount invested for every dollar provided by the loan. Finally, banks also look at an applicant’s credit history. Both personal and business credit history is reviewed before lenders settle on an amount to lend and the interest rate to set.

The 4 types of low-interest business loans

  • SBA loans
  • The U.S. Small Business Administration does not fully set interest rates on loans because it does not make loans itself. Rather, it secures loans issued by banks to help small businesses. However, it does set caps on maximum interest rates. The SBA has different maximum rates it sets depending on the size of the loan and the type of loan.

  • Traditional bank loans
  • Bank loans come in two forms: unsecured and secured loans. Unsecured loans, meaning those that are not secured by business assets or cash deposits, carry higher fixed rates. Secured loans carry the lower interest rates of the two because they require the borrower to put up collateral.

  • Online loans
  • Alternative lenders found online often offer smaller loan amounts than traditional banks, but can still help to fund a business. Interest rates are applied on both short- and long-term loan rates, though the rates on short-term loans may be higher.

  • Business lines of credit

Business lines of credit operate similarly to traditional bank loans. Credit lines can be either secured or unsecured. Just as with loans, unsecured credit lines carry higher interest rates while secured credit lines carry lower ones.

Short-term vs. long-term rates

Small- and medium-sized businesses don’t often require long-term financing. Short-term loans are often sufficient to help cope with difficult financial periods. These loans also help businesses stay out of long-term debt. However, the interest rates are also higher on short-term loans. Banks use the higher interest rates to collect back on their loans in case a borrower defaults.

Long-term loans require individuals to pay back their lender over a longer period. Interest rates are usually lower because the borrower often ends up paying back more on the loan overall when compared against a short-term loan. Because borrowers end up paying for a longer period, the smaller loan rate adds up over time to a larger amount paid back to the lender.

Borrowers also have to pass more stringent requirements to get long-term financing. Banks assume a borrower has a lower risk of defaulting when they qualify for financing over longer periods. The lower risk qualifies borrowers for lower rates because banks decide the borrower is more likely to pay back the full amount.

Where to shop for low-interest business loans

There are many lenders that offer small business loans and finding one can sometimes be confusing. Fortunately, LendingTree offers an online small business loan marketplace. LendingTree, which owns MagnifyMoney, connects small business owners with a network of small business lenders in one convenient destination. This marketplace helps to simplify the process of shopping for business loans and makes it easier to find loans with low interest rates.

The hardest part about applying for a loan through the marketplace is the work of gathering the appropriate paperwork. You’ll need to provide the following:

  • Two years of personal and business tax returns
  • Bank statements
  • Recent balance sheet
  • Legal filings showing ownership
  • Recent profit and loss statements
  • Business license
  • Business plan
  • Information about existing debts

The form you fill out will vary depending on whether it is for short- or long-term financing. Financing for certain types of operations, like buying new equipment, are also simpler and require less documentation. Before you apply, you’ll need to answer the following questions:

  • What type of business you own
  • How much you need to borrow
  • When your business started
  • Your annual revenue
  • The name of your business
  • The ZIP code in which you operate
  • Your name
  • Your credit score
  • Your contact information

Afterward, you’ll be given your funding options. This will give you a chance to select from one of LendingTree’s funding partners, who will consider your information from the form you have just completed.

The bottom line

Depending on whether you choose short- or long-term financing, you will have to pay different interest rates. Longer term loans typically come with lower rates, but you will often end up paying more over time. Fortunately, you can compare lenders and rates using the LendingTree small business marketplace.

This article contains links to LendingTree, our parent company.

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Pay Down My Debt

How to Get Out of Debt With a Low Income

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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When it comes to debt, it can often feel as if you’re alone in your effort to become debt-free. However, the truth is that many Americans are saddled with debt.

Credit card debt alone has been on the rise since 2013. That year, Americans paid $74.6 billion in interest and fees on their credit cards, according to a MagnifyMoney analysis of FDIC data. By 2018, that number had risen to $103.7 billion. If you’re looking for help in becoming debt-free, then consider the following tips.

5 tips to get out of debt on a low income

There are multiple ways that you can get out of debt. However, the five most common include the following:

1. Consider a debt management plan

A debt management plan is designed to help you set up a payment schedule that will allow you to repay your debts. Typically, you enter an agreement with a credit counseling agency. Each month, you deposit funds with your agency, and those funds are used to pay your creditors. The benefit of entering a debt management plan is that your counseling agency can work with your creditors to eliminate finance charges and other fees. Your agency can also help reduce the number of collection calls you receive. Normally, it takes no more than five years to pay off your debts using a debt management plan. Plus, after you’re done paying, you may have improved your credit rating.

There are several nonprofit resources you can consult if you need more information about these kinds of plans:

Keep in mind that not all organizations claiming to have your best interest in mind can be trusted. Both the NFCC and the Council on Accreditation are accredited organizations that adhere to ethical practices. So to avoid scammers, make sure the organization you’re working with is accredited.

2. Set and stick to a budget

One of the quickest ways to getting debt-free is by creating a budget that you can stick to from one month to the next. Creating a budget can be done in seven simple steps:

  1. Set a financial goal you want to achieve within a year.
  2. Find out your net income for a month.
  3. Record what you spend for the month.
  4. Document all the payments you will need to make each month.
  5. Document all the spending you do that you don’t need to make.
  6. Adjust your spending by cutting out expenses you don’t need.
  7. Review your spending regularly to make sure you’re sticking to your goals.

Even the best laid-out plans can go wrong, though. It’s not uncommon for people to break their budgets even when they have a solid plan, which is why it’s important to keep up to date with your spending. Fortunately, people can now stay on top of their finances better than ever by using mobile apps.

One of the best apps for getting out of debt is the You Need A Budget app. Unlike many other finance apps, You Need a Budget app was designed to help people pay down their debts. It works by forcing users to live within their income and doesn’t let them create budgets around money they still don’t have in their accounts.

Another helpful app that you can use is Mint. Mint is a more general finance tool that users can use from their PCs or through a mobile app. One of the benefits is that Mint regularly finds offers that can help users save money.

3. Reduce your monthly spending

Although we’ve mentioned the importance of cutting spending, doing so can actually be very difficult for many people. However, with the right planning, it can be done. There are several easy ways that you can control spending.

One of the quickest ways is by creating a shopping list. It can be easy to go over your spending limit when you’re not watching what you’re doing. A shopping list is an easy way for you to calculate your costs ahead of time and control your spending when you go out.

Speaking of shopping lists, an easy way to reduce spending is by reducing the amount of dining out. You can save money by creating a grocery list that sticks to your budget, eating at home and cutting back on the number of times you eat at a restaurant. Simple steps like this can add up over a month, especially if you tend to eat out often.

It’s also good to make cost comparisons. Whether you’re talking about utilities or casual expenses, you’ll want to shop smarter. Finding the best deals can take a little time, but it can have a yearlong payoff if you find the right deals. It’s especially important to compare costs when you’re talking about signing long-term contracts.

4. Increase your income

One of the most basic ways of getting out of debt is by increasing your income, and one of the most traditional ways of increasing income is by getting a raise. There are a few basic tips that anyone should keep in mind when preparing to ask for a raise. First, employees should always compare their salary against what others are making in the same role.

Salary.com is one website where individuals can estimate their salary, but PayScale also maintains salary data. Users can compare data from both websites to determine how much others in their field are making. You can also look up salary averages on the Bureau of Labor Statistics website.

Once you know how much others in your field are making, you’ll be better positioned to negotiate for a raise. It’s best if you tie any request for a raise with your performance. This means that you will need to have a discussion with your supervisor about how you have performed and negotiate your request for a raise from there. Demonstrate to your supervisor the value you bring and tie your request to that value.

Even if you’re not able to get a raise, you may be able to earn income through a side job. It’s estimated that a person can make anywhere from $1,000 to more than $10,000 through side jobs annually. Finding a side job in the 21st century is also easier than ever thanks to mobile apps. Now, people in need of additional income can find new paying opportunities much more efficiently than ever before.

While most Americans are familiar with Uber by now, there are also other apps that can introduce you to numerous jobs you might be interested in. SideHusl.com, for instance, shows how much you’re likely to earn from a gig and connect you to side jobs. The benefit of SideHusl is that you can see what you’ll make after taking into account different expenses of the job. The app also makes it easier to find gigs for people with different skills.

5. Refinance or consolidate debt

When it comes to dealing with existing debt, there are typically two ways of dealing with loans and other debts: consolidation and refinancing.

Consolidation combines multiple loans into one. You streamline the debt paying process by consolidating. Instead of having to deal with multiple payments, you can make a single payment that addresses several debts. Refinancing, on the other hand, replaces one or multiple loans with a better loan. The goal of refinancing is to replace your current loan with one that has lower interest rates. This saves on the lifetime costs you will pay.

Debt consolidation works for multiple types of debts, which include:

  • Credit cards
  • Medical bills
  • Utility bills
  • Payday loans
  • Student loans
  • Taxes
  • Bills that have gone to collection

You could use a debt consolidation loan for your debt. Online lending marketplaces, such as the one by MagnifyMoney, can help you find and compare lenders. LendingTree, which owns MagnifyMoney, offers a personalized loan tool. Input your information and the tool may spit out loan offers from up to five different lenders you can compare.

Should you refinance or consolidate your debt?

Debt consolidation is best done when borrowers have a decent credit score and are experiencing a one-time reason for falling behind in paying their debts. The better your credit score, the more options you will have when shopping for a consolidated loan. These offers will typically feature better interest rates than if your credit score were poor.

On the other hand, debt consolidation can be bad if your debt is significant. If you have recurring reasons that you’re unable to meet your debts, then you may not want to choose a consolidated loan. Instead, a debt management plan may be a better alternative.

But if you have multiple debts you’re making payments on, debt consolidation could make repayment easier. And it could reduce your overall costs of repayment.

Loan refinancing works differently from consolidation because rather than combining multiple loans into one, refinancing merely replaces one existing loan with a new one. You still have to make separate payments if you’re refinancing several loans.

Thus, refinancing can be helpful if you only have one debt you’re struggling with. Refinancing can help reduce your monthly payments by extending your loan term or by lowering your interest rate. And if you want to pay off your debt sooner, you could opt for a shorter term.

Conclusion

If you’re in debt, there’s no reason to feel alone. Many people are in the same situation, and there are many effective ways of getting out of debt. Whether by increasing your income, reworking your spending or renegotiating your debts, there are strong steps you can take toward achieving financial freedom.

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