How To Get a Crypto Business Loan: Everything You Need To Know

Crypto business loans are a way to secure funding for your business by using your digital assets as collateral. Whether you're well-versed in crypto lending or just getting started, we're here to guide you through the ins and outs of obtaining a crypto business loan.

Need a quick recap on crypto lending? Check out our Ultimate Guide.

What is a Crypto Business Loan?

A crypto business loan is a type of loan that allows you to use cryptocurrencies as collateral to secure funds for your business. 

How To Get a Crypto Business Loan Step by Step

Securing a crypto business loan is relatively similar to securing a personal loan. 

Find a Provider 

Start out by finding a provider that suits your needs. Some platforms explicitly offer crypto business loans, but even with traditional loans you can use them for your business purposes.

Unless explicitly stated otherwise, a lending provider will not restrict you on what activity you can do with your borrowed funds. That being said, picking a service with a reliable crypto lender, such as Ledn, is recommended as they understand the unique challenges businesses face.

Prepare Your Finances

Once you’ve found a suitable provider, you should prepare your assets and financial documentation. Ensure your crypto is ready to be collateralized, meaning you have access to it, and can send it to the lender efficiently. You’ll also want to log the activity for tax purposes. While this is true even for personal crypto-backed loans, it is even more significant for crypto business loans as governments scrutinize companies to a greater extent.

Apply for Your Loan

Calculate how much crypto collateral you have, and assess the APR, LTV, and any terms and conditions that come with your loan. Different providers will have different loan terms, so these factors can vary drastically. If you’re using Ledn, then securing a loan can happen in under 24 hours, making for a highly streamlined process.

How to Qualify For a Crypto Business Loan

Let's explore the requirements for a crypto business loan. These loans are more accessible than their traditional counterparts. 

Read more: How to Borrow Against Crypto – Decoding Crypto Loans

Credit Check Requirements

Different platforms handle credit checks differently. Some crypto business loan platforms or lenders may operate without conducting traditional credit checks. Instead, they focus primarily on the value of the collateralized assets. This is especially true with DeFi providers, but it’s even the case with many CeFi services. Since the loan is backed by the assets you provide as crypto collateral, your credit history might not play a significant role in the approval process. This can make these loans more accessible to businesses owned by one individual proprietor with lower credit scores.

Related content: Crypto Loans Without Collateral

Others might perform a credit check as part of their due diligence process, much like a traditional lender would. They might consider both your credit history and the value of the cryptocurrency you're offering as collateral. This aims to be a more balanced risk assessment approach.

Digital Asset Qualifications

Each platform has specific criteria for the types of cryptocurrencies they accept as collateral. For example, Ledn's B2X Loans have a minimum of $1,000 USD equivalent in BTC.

Current Financial Standing and Repayment Terms

Some crypto business loan platforms consider your financial situation and the value of your crypto collateral when determining eligibility and repayment terms.

Different cryptocurrencies might have different collateral ratios based on their volatility and market liquidity. These are percentages that represent the amount of cryptocurrency required as collateral, relative to the loan amount. For example, if you were trying to secure a $1000 loan, and you had a collateral ratio of 150%, then you would need to provide $1500 worth of cryptocurrency to do so. Of course, this is only one factor to consider. Others include the interest rate, repayment schedule, market conditions, and your overall financial standing.

The Key Differences Between Crypto Business Loans and Traditional Business Loans

Unlike traditional loans that involve paperwork and credit checks, crypto business loans use your digital assets as collateral. This results in quicker approval processes and less administrative hassle.

Approval processes for crypto loans are often faster because of the decentralized nature of cryptocurrencies and the absence of extensive credit checks. The system processes transactions relatively quickly. These loans may not require a strong credit history or credit score, as the value of your digital assets secures the loan.

Related Content: How to get a Bitcoin loan

Interest rates can vary widely, often influenced by factors like market conditions and the value of the collateralized assets.

These loans might have shorter repayment terms and may require more frequent payments, as cryptocurrencies can be volatile.

Traditional loans are subject to well-established regulations and legal frameworks. The regulatory environment for cryptocurrencies is still evolving, and there might be legal complexities and uncertainties in some jurisdictions.

Crypto Business Loan Interest Rates

Interest rates for crypto business loans vary depending on the platform you choose. Selecting the right service is essential to ensure you're getting favorable terms, as well as adequate safeguards. For instance, the interest rate offered by one platform might differ from another, even if the loan amount and collateral are the same.

Read more: Best Bitcoin Loan Rates

Here's an example to illustrate this point.

Platform A

• Loan Amount: USD $400,000, equivalent to 4 BTC (assuming the price of 1 BTC = $100,000)
• Collateral: 20 BTC
• LTV: 20%
• Interest Rate: 8% APR

Platform B

• Loan Amount: USD $1,000,000, equivalent to 10 BTC (assuming the price of 1 BTC = $100,000)
• Collateral: 20 BTC
• LTV: 50%
• Interest Rate: 10% APR

In this scenario, both Platform A and Platform B offer bitcoin-backed loans. However, the collateral requirement is different as Platform A has a loan-to-value (LTV) requirement of 20%, whereas Platform B requires a 50% LTV.

Since Platform A has a lower LTV (e.g. holds 5X more collateral than the loan), it's able to offer a lower APR (borrowing rate). Platform B requires a 50% LTV, but charges a higher interest rate. Therefore, the borrower must determine what's more important to them - LTV, interest rate, loan amount, etc - when deciding on which platform to use.

Advantages and Disadvantages of Crypto Business Loans

Let's run through the advantages and disadvantages of crypto business loans.

Advantages of Crypto Business Loans

Using crypto business loans can lead to faster approval, flexible crypto collateral options, and the potential to benefit from the appreciation of your digital assets. One key advantage is that, unlike selling digital assets to access liquidity, posting digital assets as collateral to access borrowed funds does not trigger a taxable event.

Global Accessibility

Crypto-backed loans are accessible to entrepreneurs and businesses across the globe, as they are not bound by traditional geographic restrictions. This allows businesses from all over the world to access capital they might not have been able to obtain through local financial institutions. DeFi providers are available worldwide, and many CeFi loan services operate across multiple countries.

Read more: CeFi vs DeFi – key differences

No Credit Checks

Traditional loans typically require extensive credit checks, which can be a barrier for individuals or businesses with less-than-perfect credit histories. Crypto-backed loans, on the other hand, are often secured by collateral, reducing the need for stringent credit checks– making them more accessible to a wider range of borrowers.

Diversification of Funds

Businesses that hold a significant amount of their assets in cryptocurrencies might prefer to use crypto loans to access funds instead of selling off their digital assets. This allows them to maintain their exposure to potential price appreciation while still obtaining the funds they need for various business purposes.

Efficient Processes

Traditional lenders often have lengthy loan application processes, paperwork, and approval timelines. Blockchain technology allows for faster processing of crypto business loans, enabling companies to receive funds more quickly.

Liquidity Without Selling

Crypto-backed loans provide a way to access liquidity without selling off your valuable holdings. This can be particularly valuable during periods of price growth, allowing you to benefit from potential appreciation while still using the value stored in your assets.

Disadvantages and Risks of Crypto Business Loans

Crypto business loans come with inherent risks, much like personal loans. It's vital to be aware of these potential challenges before proceeding.

Collateral Liquidation

One of the most significant risks of crypto-backed loans is the possibility of collateral liquidation. If the value of the cryptocurrency used as collateral drops significantly, the lending platform may liquidate the collateral to recover the loaned amount. This could result in a forced sale at a low price, leading to substantial losses. For example, at Ledn, they will liquidate loans that reach an 80% LTV. However, clients can enable an “auto top-up” feature that keeps their LTV below the 80% threshold and prevents liquidation.

Market Volatility

Cryptocurrency markets can be highly volatile, with prices capable of experiencing rapid and unpredictable fluctuations. This volatility increases the risk that the value of the collateral could decrease sharply during the loan term, leading to collateral liquidation and potential loss of assets.

Regulatory Uncertainty

The regulatory environment for cryptocurrencies is still evolving in many jurisdictions. Changes in regulations could impact the legality and operation of crypto lending platforms, potentially affecting the terms and accessibility of crypto business loans.

Platform Reliability and Credibility

The crypto lending space includes a mix of established players and newer platforms. Choosing an unreliable or fraudulent service exposes you to scams, theft, and poor lending practices.

Read more: 12 Best Crypto Loan Platforms

Limited Recourse

In the event of disputes or issues with the lending platform, borrowers might have limited recourse for resolving problems. Traditional financial institutions typically offer more established avenues for dispute resolution.

Is a Crypto Business Loan Right For You?

Now that we've covered what crypto business loans are, let's consider who benefits most from them.

Here are some factors that might show your business is well-suited.

You have crypto holdings

If your business holds a significant amount of cryptocurrencies that you don't want to sell but you still need access to funds, a crypto business loan could be a suitable option. By using your digital assets as collateral, you can unlock liquidity without parting with your holdings.

You have short-term funding needs

If you require short-term capital for operational expenses, marketing campaigns, or taking advantage of time-sensitive opportunities, a crypto-backed loan's quick approval process could meet your immediate needs.

Your outlook is bullish

If you're optimistic about the future price appreciation of your cryptocurrency holdings, borrowing against these assets can allow you to benefit from potential gains while still accessing funds for your business.

You can tolerate some risk

If you're comfortable with the risks associated with market volatility and collateral liquidation, and you have a strategy to manage these risks, a crypto business loan might align with your circumstances.

You're interested in diverse funding sources

If you're interested in diversifying your sources of funding beyond traditional loans or equity financing, a crypto business loan could be a unique avenue to explore.

You're ineligible for a traditional loan

If your business operates internationally and needs access to capital without the constraints of traditional banking systems, crypto loans can offer a more globally accessible financing solution. Closely attached to this is if you need quick access to finances, and so you’d prefer to avoid a lengthy loan application process, as traditional providers can be slower.

You want flexibility over how you spend funds

If you need funding for various purposes and value the flexibility to use borrowed funds for different business needs, a crypto business loan could provide the versatility you're looking for.

On the other hand, a crypto business loan might not be suitable for those uncomfortable with cryptocurrency volatility or facing financial instability. Additionally, businesses preferring traditional financing, concerned about tax liabilities, or operating in uncertain regulatory environments may find traditional loans are better aligned with their needs.

Ledn’s B2X Loans

If crypto business loans aren't suitable for your situation, there are alternative financing options available.

These include traditional business loans, equity financing, or innovative solutions like Ledn B2X Loans.

This Ledn-exclusive product combines a Bitcoin-backed Loan with the purchase of an equivalent amount of Bitcoin to use as additional collateral for such loan. Upon loan repayment, you receive both the initial collateral you had posted for the loan and the newly purchased BTC. The loan can be open for up to 12 months and be repaid at any time without penalty, with the BTC balance returned to the user.

Why Use Ledn For Your Crypto Business Loan?

Ledn is a top pick for crypto business loans. Many people choose them because they have an unblemished record of never pausing client withdrawals, and offer competitive lending rates without hidden fees.

Ledn is also favoured because of their prioritization of asset security with world-class protocols, such as AES-256 encryption, 2FA activation, and storage through qualified custodians, including BitGo. They have even received a SOC 2 Type 2 certification, meaning they provide top-tier security, privacy, confidentiality, accessibility, availability, and processing integrity.

Conclusion

You're now ready to make informed decisions over your business financing. Crypto business loans offer quick approval, global accessibility, and the ability to keep your digital assets while accessing funds. If this sounds appealing to you, be sure to check Ledn, along with our guide to the top crypto lending platforms in the industry.

Ready to transform your professional ambitions into reality? Ledn can assist you with a crypto business loan. Get started today.

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