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What you must know about guaranteed business loans

What you must know about guaranteed business loans

If you’re looking for funding your small business with a loan, you’ll most likely come across the term “guaranteed business loans.” People often misunderstand this term as business loans that are guaranteed to be approved. But, this is not what guaranteed business loans means. To clarify the confusion, let’s understand what the term actually means, and discuss the most popular types of guaranteed business loans.

What are guaranteed business loans?

In simple terms, guaranteed business loans in the world of small business loans refer to loans that are secured or backed by a guarantee. The guarantee can be in the form of collateral, deposit, or an agreement. This essentially means that the lender is guaranteed to receive their money back even if the borrower fails to pay.

When we talk about guaranteed business loans, we refer to loans with a personal guarantee or, more commonly, loans guaranteed by the small business administration (SBA). Let’s take a look at both these types.

Personally guaranteed business loans

As you understand from the term “personal,” when you make a personal guarantee on a business loan, you essentially agree to sell your assets to pay off the loan, if your business is unable to do so. This means your lender now has the legal right to right to collect your assets to recover their losses.

SBA-guaranteed business loans

SBA backed loans are the most common type of guaranteed business loans. However, you must know that these loans are not directly offered by the Small Business Administration (SBA). The loans are provided by their lending partners, mostly banks, and SBA guarantees a portion of the offered loan. This is how SBA assures lenders that they will receive a large percentage of loan back, even if the borrower fails to pay. Typically, SBA guarantees a payback of up to 85% of the loan amount to the lenders.

SBA offers guaranteed business loans to small businesses through a variety of programs. Of them, the most popular and common type is SBA 7(a) loans. Let’s understand more about it.

SBA 7(a) Loans

A person or a small business group can get SBA 7(a) loans of up to $5 million. This can be used for various business purposes, such as buying another business, renovating the office, or using it for other business-related issues.

The loan term on SBA 7(a) loans are variable and depend on the way you’re planning to use the funds. According to SBA, loans for working capital or daily operations have a 7-year term; loans for new equipment purchases have 10-year terms, and loans for real estate purchases have a term of up to 25 years.

The interest rates on SBA 7(a) loans primarily depends on who your lender is and your qualifications. And the good part is that the lender is not allowed to charge a rate beyond the SBA’s mentioned limit.

It can take anywhere from a few weeks to months to get an SBA loan. You can visit the SBA website to check if you qualify for the loan and how to apply. Your chances of getting qualified are substantially higher if you have a strong personal and business finances.

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Automated investing services, or Robo advisors, have become ubiquitous in the present times. Many financial service companies now have their own automated investing services. There’s no doubt that the introduction of Robo advisors has made investing an accessible financial option to many. However, automated investing has some disadvantages as well. So, before you decide to opt for the best automated investing service, have a look at its pros and cons.Pros of using Robo advisorsLow feeLow management fees are one of the biggest advantages of opting for a Robo advisor. Big names in the finance industry such as Charles Schwab Corp.'s Intelligent Portfolios offer Robo advisors for free, while some financial institutes such as Betterment and Wealthfront charge a low 0.25% as a management fee. High-quality investment portfoliosAlgorithms used in some of the best automated investing services such as the ones provided by Betterment are backed by Nobel prize-winning investment models. These models are created to offer the greatest return on investment for the smallest risks. Access to a financial advisorMany traditional financial services companies now use Robo advisors to select assets for their client’s investment portfolios. This allows them to offer their clients financial advisers that can help them with taxes, loans, and any kind of financing or investment.Easy to useRobo advisors make the entire investing process extremely quick and easy. With Robo advisors, all you need to do is answer some questions about your financial goal, risk tolerance, and capital, and the algorithm will come up with an investment portfolio that is suitable for your needs. Low minimum balanceEven individuals with low net worth can enjoy the services of professional advisory via Robo advisors. Several investment companies such as Betterment and Ellevest offer access to the best automated investing services even with zero balance. Cons of using Robo advisorsThey're not financial plannersIndeed, in terms of purely creating profit-racking portfolios, the best automated investing systems can be better than human financial planners. However, a Robo advisor cannot understand your short- and long-term goals and financial concerns as a human financial advisor. A good financial planner understands your financial aims and helps you create a portfolio that helps you meet your future retirement goals. Financial planners are especially helpful at times when the market is not performing well. They can be limitingRobo advisors can’t go beyond their pre-programmed questions when creating an investment portfolio. They can also be limiting if you’re looking for more complex investment strategies, and can’t engage in trading on your terms. Many sophisticated investors demand a larger investment portfolio with different asset classes, which may not be possible even with the best automated investing systems.

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How to qualify for a reverse mortgage

A reverse mortgage provides the elderly access to equity in their homes and supplements their income. With its flexible repayment option, it gives homeowners more control over their money. However, the government has laid out strict rules and guidelines concerning reverse mortgage eligibility criteria. So, if you’re considering a reverse mortgage, read on to know the reverse mortgage eligibility criteria and the types of reverse mortgages.Reverse mortgage eligibility criteriaThe first criterion for a reverse mortgage is that the primary homeowner must be at least 62 years of age. If your spouse is under the age of 62, you might still be eligible if you meet other reverse mortgage eligibility criteria. If you’re not 62 or older than 62, then you won’t qualify for a reverse mortgage even if you satisfy the criteria mentioned below.You must be the primary resident of the home you’re seeking a reverse mortgage for. Note that vacation homes or rental properties do not qualify. You must either entirely own the house or have at least 50% equity in it. If you have any mortgage balance remaining while applying for a reverse mortgage, you must be in a financial position to pay off that balance.You must not be late or overdue on any debt from the federal government. This includes income taxes and federal student loans. If you have to pay off such debts, you may very well use the money from the reverse mortgage loan to settle these debts.You must already have enough money, or be willing to use the money from the reverse mortgage loan to pay property taxes, insurance, and home maintenance and repair costs. You must meet a Department of Housing and Urban Development (HUD)-approved reverse mortgage counselor to understand how a reverse mortgage works. During the counseling, the counselor will review your eligibility for a reverse mortgage loan and inform you of the financial ramifications associated with a reverse mortgage. Types of reverse mortgagesNow that you know the reverse mortgage eligibility criteria, you might want to learn about the different types of reverse mortgages.Proprietary reverse mortgagesA proprietary reverse mortgage is what you need if you’re seeking a larger loan amount. You can easily get them if you have a higher-value home. However, you must note that these are private loans and are not backed by the government.Single-purpose mortgagesThis is the least common type of reverse mortgage, and the borrower can only use the fund for one specific purpose. It’s usually offered by non-profit organizations, and a few local and state government agencies. Home equity conversion mortgagesThis is the most popular type of reverse mortgage since it is funded by the U.S Department of Housing and Urban Development (HUD). Although these mortgages have higher upfront costs, the borrowers are allowed to use the fund for any purpose.

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