Do you want to start your own business? Do you have a billion-dollar start-up idea to turn into reality? Are you just holding back because of lack of funds? Is your credit score hindering your success?
Any lender would feel insecure to give you a loan when you have a poor credit history or no security/mortgage. But when a guarantor backs you, you assure them of the repayment of their money. Here, things take a positive u-turn. Loans with a guarantor are usually known as guaranteed loans or guarantor loans.
Who is a Guarantor?
A guarantor is a co-signer in your loan application, who takes the responsibility of repaying your debt if you are unable to. The liabilities and legal responsibilities of your loan are shared with the guarantor.
If you fail to repay the loan, the guarantor is next held liable to make the payments. The lender has the right to even repossess the property of the guarantor if payments are not made.
Who can be a Guarantor?
People with good credit scores and valuable mortgages are considered as reliable guarantors. They should be at least 21 years of age. Family members, friends or acquaintances can be your guarantor. Your financial partners or spouse do not qualify as guarantors.
Some financing companies act as guarantors in case of a car or home loan. They keep the purchased property as a security with them, and have the right to repossess it when you fail to make the repayments.
A good and reliable guarantor either is free of any existing mortgage, or has enough equity to take on your debt as well.
Why do you need a Guarantor?
Going about on your own and starting a new business requires funds. If your loan application was rejected by the traditional sources or any direct lender, chances are that they found you unreliable. This can be due to your poor credit history, employment status, irregular finances, or lack of security.
Your business idea, strategy, market predictions, and product valuation are also considered. They help the lenders decide if you require a guarantor to cover your vulnerable areas.
The lender needs assurance that his money will be paid back to him. A guarantor provides that assurance to the lender, and enhances your reliability.
A guarantor adds security to your loan application, and reduces the risk in repayment of the debt.
How do you find a Guarantor?
The guarantor loans have sometimes been known to affect families and friendships, due to the risk to the guarantor involved. Lack of success of your business may prove fatal for the guarantor.
For this reason, your business proposal should be attractive enough to make people share the risk with you. Your business idea should have the potential to decrease the resistance of the guarantor in co-signing your loan application.
Today, money matters a lot to people. Be confident about your plans and strategy before you approach someone. Your guarantor should be convinced that your business does not pose a risk to his finances, or property.
About Varying Principle and Rates of Interest
Principle amount and rate of interest of any loan is dependent on the amount of risk to the lender while giving money to you. There are loans that are approved even to the people with bad credit. But they feature small sum and large interest, for the simple reason of great risk involved.
Presence of a secondary borrower reduces the risk in lending to you. This increases the sum offered, and decreases the rate of interest.
Another interesting fact is that most lenders in the UK (whether traditional or direct) prefer guarantors who are homeowners. This factor significantly increases the principle offered.
The rate of interest for guarantor loans also depends on your lending source. A traditional source would offer you a secured loan with lower rate of interest as compared to an unsecured loan from an online direct lending source.
About Loan Term & Repayments
These loans are usually offered for one to five years. You can schedule monthly payments according to your convenience.
It is always advisable to make timely repayments. These loans help you greatly in improving your credit score when you are punctual in your payments. Your business would need future borrowings, and a good credit score.
If your business flourishes with time, and you are able to pay off the balance earlier than your agreed period, your lender might charge an early repayment fee. You should discuss this condition before signing the loan agreement to avoid surprise payments.
Make sure that you read the loan agreement properly for any extra charges or fees that the lender might be levying. You would want to avoid paying extra at the beginning of establishing your business.
To conclude,
Your business plan does not need to just remain on paper. Your family or friends would love to see you succeed. Show them that you can make the payments, and take them into confidence to be your guarantor.
Multiple online direct lenders offer great deals on guaranteed loans for you to choose from. Stop worrying and start looking!
