Introduction to business loans

23
7573

Business loans refer to the transfer of funds from a lender, usually a financial institution, to a borrower. In this case, the borrowers are companies and the financial institutions are banks. The interest to be paid and the repayment schedule are decided by the bankers and the borrower accepts these conditions. Lenders can offer unsecured or secured loans. Secured loans require collateral, which is usually personal assets, such as the borrower’s home. However, when it comes to business loans, collateral is something that belongs to the business – machinery, real estate,

There are many reasons businesses get a loan. Some may need additional funds for business expansion or to offer additional services, while others would need funds to make various small or large purchases. Lenders consider several factors when granting these loans. First, they will check the creditworthiness of the company. They would also assess how successful the business was and the likelihood of it being profitable. Obtaining loans for a new business is indeed very difficult, and the credit history of the individual borrower is almost the only criteria for decision-making.

As the lender naturally wants to ensure that the borrower has the ability to repay the borrowed money, borrowers must meet very strict preconditions to qualify for the loans.

If the risks involved in lending are high enough, it is usually better to seek investors within the family or social circle who could lend money or buy part of the business. Banks are certainly not inclined to offer high-risk loans. Small businesses that need smaller loans might check with government sources that lend money, or other companies that offer micro-loans, as their lending terms aren’t that tough.

Businesses that obtain loans at start-up have the advantage of establishing their credit history as the business grows. As with personal loans, businesses must also ensure that they repay borrowed funds on time. Failure to make timely payments damages a business’ credit history, making it difficult to obtain business loans in the future. Banks and other lending institutions consider not only the company’s credit rating, but also its past earnings as well as the profits the company is likely to make when it is granted the loan.

As for the citizens of the United States, those looking for loans in order to start a new business or continue the current one should look into a good source before approaching the banks. The United States Small Business Administration is a government agency that provides financial support to small businesses. Although not everyone can get help through this program, one should definitely make a sincere effort and try, as the loans available under this program carry a lower interest rate and loan repayment terms. loan are not that difficult.



Source by Waheed Honey

Comments are closed.