The rise of DeFi has prompted people to search for Bitcoin loan sites.
If you’re running a business from home, then you might be searching for alternative ways of financing business purchases.
Bitcoin loans can help small and home businesses secure a line of funding to survive and even thrive through the economic troubles which COVID-19 caused.
In this article, we’ll take a look at a few top sites as well as several tips on using them.
How to Borrow Bitcoin
First things first, we need to learn what borrowing Bitcoin means and how to borrow safely.
The ability to borrow Bitcoin, Ethereum, and fiat currencies comes from a new type of technology called Decentralized Finance, or DeFi.
Binance Academy shows that:
“Decentralized finance brings numerous benefits when compared to traditional financial services. Through the use of smart contracts and distributed systems, deploying a financial application or product becomes much less complex and secure. For instance, many dApps are being developed on top of the Ethereum blockchain, which provides reduced operational costs and lower entry barriers.”
In traditional finance, if you wanted to borrow funds, you would need to go through a lengthy process of credit checks, applications, discussions with loan agents, and possible collateral.
You’d then need to wait for several days before the funds entered your bank account.
Decentralized Finance is different in that it is faster and cheaper and does not require a credit check.
You can get a Bitcoin loan in a matter of hours or less with processing costs that are less than typical business loans.
These benefits are good for home businesses that might need a small and quick infusion of capital to cover operating expenses or other costs.
However, DeFi does require collateral.
That must be said right off the bat. You will need collateral to secure a DeFi loan.
DeFi dispenses with credit checks and loan agents because it uses smart contracts to verify that you deposited a collateral amount — and then issues your loan based on that collateral.
For example, if you want to borrow $5,000, then you will usually need to deposit $10,000 or more in Bitcoin or other collateral to secure that loan.
Steps to Borrow Bitcoin
The way to borrow bitcoin generally looks like this:
- Find a site that meets your needs.
- Find a loan term that meets your needs.
- Deposit the required collateral.
- Make the agreed payments until you pay off the loan.
- Withdraw your collateral.
It’s important to make payments on time, otherwise your collateral might be sold to cover the debt.
It’s also important to keep in mind that the value of your collateral might fluctuate — and that could cause it to be sold off to cover your loan.
For example, if you deposit that $10,000 using Bitcoin, then — at current prices of 1 BTC = about $10,000 — you will need to deposit 1 BTC.
However, if the value of your 1 BTC falls due to market fluctuations — and let’s say the value falls to 1 BTC = $5,000 — then your collateral will be sold off to cover that loan.
This is why it’s important to thoroughly read the terms and conditions on the DeFi loan you might choose to use.
Generally, a good Bitcoin loan site will inform you if the price of your collateral drops.
For example, in this scenario, they should email and/or call you when the value of your 1 BTC drops to $7,000.
At that point you’ll have the opportunity to either pay back your loan and withdraw your collateral, or deposit more BTC to increase the value of your collateral.
Those levels vary based on the Bitcoin loan site.
Top 3 Sites to Borrow Bitcoin
If you are still looking to go ahead with a Bitcoin loan, then the top three sites to take a look at are:
- NEXO
- Coinbase
- BlockFi
Those three sites cover customers located in either the US, Europe, or the UK.
Each one offers different rates and terms, however, they all will contact you if the value of your collateral falls — giving you the opportunity to secure your collateral before they sell it off.
Take your time investigating those top three sites and find one that fits your specific needs in terms of your home business or other financial needs.
