WHAT IS A BUSINESS LOAN?
A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest
Business loan means a loan or other extension of credit to any cor- poration, general or limited partner- ship, business trust, joint venture, sole proprietorship, or other business entity (including entities and individuals en- gaged in farming enterprises).
A business loan is any type of financing that’s used to fund business expenses — from paying staff wages to purchasing inventory.
UNDERSTANDING A BUSINESS LOAN.
Business loans provide business owners with financing either as a lump-sum payment or credit line. In exchange for this funding, your business agrees to repay the money it borrows over time, plus interest and fees. Depending on the type of business loan, your lender may require daily, weekly or monthly payments until fully repaid.
Additionally, business loans are either secured or unsecured. Secured loans require collateral— something of value the lender can repossess if you fail to repay—to back the loan, like real estate, equipment, cash or investments. Unsecured loans, however, do not require collateral. Instead, you typically have to sign a personal guarantee agreeing to accept personal liability if the business doesn’t repay its debt as promised.
HOW DO BUSINESS LOANS?
Business loans are a form of credit offered by lenders to businesses. In exchange for this money, lenders require repayment of the principal with interest and fees added to it. Usually, working capital loans require the borrower to make regular payments on a set schedule, but repayment terms and interest rates can vary quite a bit depending on the lender and your qualifications.
* A Business loan is done between a bank and a business, used to fund operating costs and capital expenditures.
* Many Business loans require collateral, such as property or equipment.
* Companies generally have to provide financial statements to prove their ability to repay.
* Although most Business loans are short-term, they can be “rolled,” or renewed to extend the life of the loan.
SECURED VS UNSECURED BUSINESS LOANS.
A secured business loan requires collateral in the form of business or personal assets as a guarantee for the lender. An unsecured business loan doesn’t require collateral, although lenders may ask for a personal guarantee instead.
Important: Business loans are most often used for short-term funding needs.
TYPES OF BUSINESS LOANS.
It’s very important you understand how each loan works, so you can choose the best option for your business. Below, Bectic Finance Company Limited Select reviews nine types of small business loans that can benefit your company.
Here are 9 types of business loans;
1. Term loans.
A term loan is a monetary loan that is repaid in regular payments over a set period of time. Term loans usually last between one and ten years, but may last as long as 30 years in some cases. A term loan usually involves an unfixed interest rate that will add additional balance to be repaid.
2. SBA loans.
Small Business Administration (SBA) loans are enticing for business owners who want a low-cost government-backed loan. However, SBA loans are notorious for a long application process that can delay when you will receive the funding. It can take up to three months to get approved and receive the loan. If you don’t need money fast and want to benefit from lower interest rates and fees, SBA loans can be a good option.
3. Business lines of credit.
A business line of credit is a revolving loan that allows access to a fixed amount of capital, which can be used when needed to meet short-term business needs. A business line of credit is the best financing option when you need extra working capital to cover recurring business expenses or bridge cash flow gaps.
4. Equipment loans.
If you need to finance large equipment purchases, but don’t have the capital, an equipment loan is something to consider. These loans are designed to help you pay for expensive machinery, vehicles or equipment that retains value, such as computers or furniture. In most cases, the equipment you purchase will be used as collateral in case you can’t repay the loan.
5. Invoice factoring and invoice financing.
Business owners who struggle to receive on-time payments may want to choose invoice factoring or invoice financing (aka accounts receivable financing). Through invoice factoring, you can sell unpaid invoices to a lender and receive a percentage of the invoice value upfront. With invoice financing, you can use unpaid invoices as collateral to get an advance on the amount you’re owed. The main difference between the two is that factoring gives the company buying your invoices control over collecting payments, while financing still requires you to collect payments so you can repay the amount borrowed.
6. Commercial real estate loans.
Commercial real estate loans (aka commercial mortgages) can help you finance new or existing property, like an office, warehouse or retail space. These loans act like term loans and may allow you to purchase a new commercial property, expand a location or refinance an existing loan.
A Microlender is a non profit organization that receives a loan from SBA. In turn, the Microlender makes small loans to very small businesses in the community. The Microlender also provides technical assistance to the small business. All credit decisions are made by the Microlender.
8. Merchant cash advances.
Like traditional cash advances, merchant cash advances come at a high cost. This type of cash advance requires you to borrow against your future sales. In exchange for a lump sum of cash, you’ll repay it with either a portion of your daily credit card sales or through weekly transfers from your bank account. While you can often quickly obtain a merchant cash advance, the high interest rates make this type of loan a big risk. Unlike invoice financing/factoring, merchant cash advances use credit card sales as collateral, instead of unpaid invoices.
9. Franchise loans.
Becoming a franchisee can help you achieve your goal of business ownership quicker and easier than starting from the ground up, though you’ll still need capital. Franchise loans can provide you with the money to pay the upfront fee for opening a franchise, so you can get up and running. While you’re the one taking out the loan through a lender, some franchisors may offer funding to new franchisees.
WHAT ARE BUSINESS LOANS USED FOR?
A business loan can be used to help fund the purchase of premises for your business, to help you buy stock, or to cover ongoing running costs. You might need a long-term business loan to finance a start-up company if you do not expect to bring in any revenue for your first few months.
You can use business loans for many different purposes. When you apply for financing, however, you will usually need to let the lender know how you intend to use the funds. Common uses include:
* Startup costs
* Commercial real estate purchases and/or remodeling
* Cashflow for everyday expenses
* Debt consolidation or refinancing
* Equipment purchases
* Inventory purchases
* Business acquisitions
* Business expansion
* Business franchising
* Marketing and advertising
DOCUMENTS COMMONLY REQUIRED FOR BUSINESS LOANS.
* Bank statements.
* Personal and business tax returns.
* Business licenses and permits.
* Employee Identification Number (EIN)
* Proof of collateral.
* Balance sheet.
* Copy of your commercial lease.
* Disclosure of other debt.
ADVANTAGES OF BUSINESS LOANS.
Advantages of commercial business loans include:
* Flexibility for usage. Unlike equity investors, lenders like banks and NBFCs don’t * * interfere with how you run your business. …
* Convenient and easy. …
* Reasonable interest rates. …
* No sharing of profits. …
* No collateral required. …
* Working capital support. …
* Multiple loan options. …
* Tax benefits. …
DISADVANTAGES OF BUSINESS LOANS.
Disadvantages of commercial business loans include:
* Not All Businesses Are Eligible.
* Loans Secured Against Collateral.
* Tedious Application Process.
* High-Interest Rates.
* Strict Repayment Schedule.
* Processing Fees.
* Difficulties in Acquiring Loans.
HOW TO GET A BUSINESS LOAN IN 6 STEPS.
1. Decide what type of loan you need to fund your business. …
2. Determine if you qualify for a business loan. …
3. Determine what payments you can afford. …
4. Decide whether and how you want to collateralize the loan. …
5. Compare small-business lenders. …
6. Apply for a business loan.
With so many options available, it can be overwhelming to choose a small business loan. But if you evaluate your business needs, you can narrow down the options. Then do research on a few lenders to see what interest rates, fees, loan amounts and terms are offered. This can help you find the best loan for your situation and get your business the money it needs to succeed.
A business loan is a financial tool that you as a business owner can avail of to address urgent and planned expenses. With the Bectic Finance company Limited Loan, you can use the sanction to expand your business. buy machinery or boost production with ease.
Want to break all business barriers with a loan for business? Bectic Finance Company Limited can help you avail of quickbusiness loans. You can apply for a business loan online with us. We ask for no collateral, offer high loan eligibility. Grow your business with Bectic Finance company Limited customised business loans today.
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