Is it better to take a guarantor loan or bad credit loan for your business?
Whether it is about expanding an existing business or starting a new business, taking a loan becomes necessary for every commercial entity. However, if the loan has to be taken in a bad credit situation, then borrowing funds can be difficult. In that case, the loan options are limited.
However, due to the flexible lending market, there are two popular options available for business owners. One is guarantor loans with no credit check, and the other is loans for bad credit without a hard search.
Both these loans are completely different in features and nature. Knowing about both of them will help a business owner to make the right loan decision. If you are running a business, you should know about the relevant loan products. This is how you can continue business growth without wasting time whenever needed.
What are guarantor loans?
A guarantor loan is a short-term unsecured loan that includes a third party, i.e., a guarantor, along with the main applicant. The purpose of including a guarantor is to show strong repayment capacity. This reduces the risk for the lender.
However, it is important that the guarantor has a good credit score and regular income. Mostly, the guarantor is someone from among close friends, family, or business partners. Lower rates of interest are also available in comparison to bad credit loans.
Its key features are:
- Unsecured loans with no demand for collateral.
- A guarantor with strong credit purchase power is required.
- Allows higher borrowing limits and longer tenure.
What is a bad credit loan?
A bad credit loan is a specialist loan product designed only for loan applicants with poor credit scores. These loans are offered by specialist lenders who are willing to take a higher risk. With decided repayment terms and slightly higher interest rates, funds are approved on instant decision. But a speedy process is possible only in the case of direct lenders.
Its key features are:
- Typically, it is available without a guarantor requirement.
- The rate of interest is higher, but due to customized offers, repayments are manageable.
- Available in both unsecured and secured forms.
- As compared to a guarantor loan, the loan limit is low, and the repayment tenure is also shorter.
Situations when guarantor loans become a better choice
As you read above about guarantor loans and bad credit loans, both are completely different in nature and features. This is why the use of both loans is suitable in different circumstances. Let’s try to know such situations in which taking a guarantor loan is a better option.
If you have a dependable person who is ready to become your guarantor. People often hesitate to take responsibility for a loan taken by others. This happens because if you are unable to pay on time, a legal obligation is there on the guarantor to pay the loan instalment.
This is why people are afraid of taking additional financial responsibility. Therefore, for a guarantor loan, if you have someone who is ready to become your guarantor, avail funds.
- If you want to keep your monthly repayments low, then you can choose this loan option. Due to the low rate of interest, the repayments of these loans are affordable. Therefore, for those business owners who want to repay the loan in easy installments, the loans are a great option.
- You have just started a business and do not have the capacity to provide collateral. Mostly it happens with start-up businesses that they do not have any asset available to pledge. In that case, with the help of a guarantor, one can easily borrow a large amount at a lower rate of interest.
- If you want to fund multiple business purposes, this option is also available. There are many types of expenses in a business, so it is not necessary to mention any specific purpose while taking guarantor loans. You can use it for purchasing inventory, building a website or for any relevant commercial activity. However, there is no purpose constraint in bad credit loans as well, but their cost is higher than these loans.
Circumstances when loans for bad credit are better
Just like there are some ideal conditions for taking guarantor loans, bad credit loans are more suitable for some situations.
- You do not have any guarantor, and you do not want to involve your friends or family in your financial dealings. In that case, taking a bad credit loan is the right decision in this situation.
- You need money as soon as possible; in that situation, loans for poor credit are the right choice. For guarantor loans, you will have to first find a guarantor, which is not an easy task.
- You have an asset to pledge, which you can present as collateral. Through this, you can achieve higher lending limits at a lower rate of interest. This is usually a great option for those who want to borrow hassle-free despite a poor credit situation.
- Your business is well-established and operational. This way, you can demonstrate your repayment capacity to the lenders directly through your profits or revenue.
Conclusion
After reading the description of both the loans given above, you can understand that both have their own importance. Therefore, it is not possible to call any one of the two loans better.
Choose guarantor loans according to your needs. On the other hand, there are some circumstances in which there is no better option than a bad credit loan.
This brings some vital conclusions. These are –
- Whatever loan you apply for, it is vital to check your repayment capacity. Every kind of loan is supportive and helps in your business growth.
- When you are not able to make the payback on time, you gradually become a victim of a debt trap. At the same time, due to the poor credit rating, future loan options are also available to you at a lower rate of interest.
- In simple words, whether guarantor loans or short term business loans for Bad Credit, both are useful. The most important thing is to understand your business circumstances. Only then you will be able to decide which one is better in current circumstances.
Are you growing faster in your UK-based business? If yes, then that is awesome. Do you still want to add more into your business loan knowledge? You are welcome here!
Hudson Brown is a master of the UK business sector as he shows in his research-based blogs and articles. He has a great skill of engaging users with his writings and turning them into loan aspirants. Hudson has more than 15 years of experience in business loan writing, editing and marketing.
What makes Hudson different from others is his passion for business writing. Every writing piece has a compilation of extensive research on the topic and a detailed explanation.
Well, you are not only going to apply for a business loan at Busiloans but also enhance your loan knowledge to apply again as a pro! Read, learn and become an expert like Hudson. Are you ready? You should be…
