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Loan vs Mortgage: What’s The Difference?

When businesses want to hire staff, purchase property, hold more inventory, or engage in any expansion activity, additional cash is required. For those that do not currently have the finances to support this growth, borrowing money can be a good idea, as it makes otherwise impossible plans become reality.

A common question from business owners is on the difference of a loan vs mortgage. For those who are satisfied with a surface level answer, a mortgage is a type of loan, and every mortgage is a loan, but not every loan is a mortgage.

For a longer answer, read on!

What are loans?

A loan is a sum of money that is borrowed by an individual or entity from a lender, which must be repaid with interest over a specified period of time. Loans can be used for various purposes, such as buying a car, financing a home renovation, or paying for education.

There are several sources of loans that individuals or businesses can explore, depending on their specific needs and financial situation. Here are some common sources of loans:

  • Banks and Credit Unions
  • Independent Money Lenders
  • Credit Cards
  • Family and Friends
  • Government Programs

Most people turn to banks when first trying to secure a loan due to the range of loan types and attractive interest rates. However, as can be seen from the list, there are many other sources of loans in Malaysia, all of which are viable options depending on the business structure and amount needed.

What are mortgages? 

A mortgage is a type of loan that is specifically used to finance the purchase of a property, such as a house or a commercial building. When a mortgage is taken out, the property serves as collateral, which means that if you fail to repay the loan, the lender can seize the property to recover their money.

Businesses can take out mortgages to purchase or refinance property such as office buildings, warehouses, retail space, or factories.

Commercial mortgages typically have different terms and conditions than residential mortgages. For example, commercial mortgages usually have higher interest rates, shorter repayment terms, and larger down payment requirements.

A new option: Equity Crowdfunding

Equity crowdfunding is a type of crowdfunding typically conducted through a dedicated online platform that connect investors with companies seeking funding in exchange for share ownership. Individuals can invest in a business and become shareholders.

Companies seeking funding will create a profile on the platform and provide information about their business, financials, and investment opportunity. Investors can then review the information and decide whether to invest in the company.

Equity crowdfunding can be an attractive option for businesses because it provides access to a large pool of potential investors and can be a faster and more flexible way to raise capital than traditional methods such as bank loans or venture capital.

Think Carefully Before Taking Out Loans

Regardless of whether it is a conventional business loan, commercial mortgage or equity crowdfunding, business owners must consider short and long-term implications of taking on debt or selling off ownership of the company. The first carries the risk of insolvency or business property being seized, while the second could have the founders deeply regretting their choice if the company performs extremely well and the share value skyrockets.

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