What is a business loan?
This means that borrowed funds can only be spent on specific purposes: for example, participation in a tender, payment for office space, purchase of new equipment, salaries to employees, and so on. The borrower will have to confirm all these expenses with invoices, checks, contracts, and business documents.
Of course, an entrepreneur can take out a regular consumer loan instead of a business loan. But the rates for such offers are usually higher and the amounts are smaller.
Types of loans for starting a business
Banks offer small businesses many programs with different conditions, which are easy for beginners to get confused about. To prevent this and choose the most profitable option, let’s figure out what types of business loans exist.
Targeted loan. This is a loan that is obtained from banks at a fixed interest rate for a specific purpose: replenishing working capital, refinancing debt, building a new workshop, and so on. The purpose must be indicated in the agreement, and the entire loan amount is transferred to the bank account of the entrepreneur or company. Typically, such loans are issued at a low interest rate, but require collateral: for example, real estate or transport. There are also unsecured targeted loans, but usually the rate on them is higher.
Express loan. This is the name of a type of loan that does not require insurance, collateral or guarantors. You can apply for a loan online at many banks and receive money within a few hours. But there are also disadvantages - a shorter loan period (from 3 to 6 months) and a high interest rate.
Overdraft. This type of loan provides the borrower with the opportunity to temporarily go into the negative on his current account. The maximum overdraft limit, as well as the period during which the debt must be repaid, is set by the bank. This type of lending is connected to the organization’s current account. The company goes into the red for a while and uses the bank’s funds, and when money arrives in its account, the overdraft is automatically cleared and becomes available again.
Credit line. The terms and conditions of this type of business loan are similar to those of a credit card for the average consumer. The bank approves a certain limit for its client, which he can use at any time, take the entire amount or part of it, and then return it with interest. So, you can borrow from the bank several times during the period specified in the agreement.
Leasing. The scheme is this: you ask the bank to purchase the goods you need for your business, for example some equipment, and then you take it for use for a certain period and start earning money. While you use the equipment, you gradually pay the bank its cost. When the lease agreement expires, you buy the equipment from the bank at its residual value.
Commercial mortgage. In essence, this is the same mortgage, only for a legal entity. A loan is obtained for the purchase of commercial real estate: an office, a warehouse, a salon, a cafe, a production workshop.
When a novice entrepreneur or company founder figures out for what purposes and what type of loan he needs, he should study the offers of different banks and compare the conditions: interest rate, loan term, collateral requirements.
Thank you for the useful information about business loans. Indeed, many entrepreneurs take out loans to open or develop a small business, and this is a rather wise decision. The main thing is to find a reliable financial service. Find valuable information about business loans on Born Alive Truth and you will understand that business loans can really be quite easy. I advise you to think about getting a business loan.
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