Do you know the difference between a promissory note and a surety?
Advantages of Business Loans and Collateral Options
By investing on the SAVY platform, you can choose from three types of loans – consumer loans, mortgage loans secured by real estate, and business loans. Before deciding to invest in a business loan, we recommend considering not only the loan interest rate but also the term and collateral options.
Main advantage of business loans – short term
As a rule, most investors want to recover their investments as quickly as possible. According to Q3 2022 data, the average business loan term is 23 months, compared to 40 months for consumer loans and 127 months for mortgage loans. The average interest rate for business loans is 13%, while consumer loans average 18.8%, and mortgage loans 8.3%.
Business loan collateral options
It is important to note that all business loans are secured by a promissory note, a guarantee, and, in some cases, by real estate or other assets. Promissory notes and guarantees are the main instruments for securing business loan repayments, and below we explain the difference between them.
Promissory note – a document in which the issuer commits to pay a specified sum of money to a designated person. The main advantage of a promissory note is that the creditor’s claims are satisfied without a dispute, i.e., outside of court proceedings, which usually take a long time. In other words, if a business becomes insolvent, we only need to approach a notary to issue an enforcement order, which can then be immediately submitted to a bailiff for execution.
Guarantee – the assumption of responsibility for another party’s obligations – debts. A guarantee for a business loan means that if the company struggles to repay the loan, the guarantor must repay it. As a repayment instrument, a guarantee effectively protects against borrower insolvency because it allows the lender to claim repayment not only from the primary borrower but also from the guarantors, who are equally responsible for the debt, including interest and penalties. The likelihood that neither party will repay is much lower. Debt recovery under a guarantee follows standard court procedures, so the enforcement process takes slightly longer than recovery via a promissory note.
Less competition
Another advantage of business loans is that investing in this type of loan typically involves much less competition. We encourage investors to review the automatic investment profiles and create at least one profile for business loans.
Less competition
Another advantage of business loans is that investing in this type of loan typically involves much less competition. We encourage investors to review the automatic investment profiles and create at least one profile for business loans.