What are Business Loans?
A business loan is funding given by a lender to a business, an individual, or an organization usually to be repaid by a certain date with a certain amount of interest. The amount of a loan, the amount of interest, the repayment date, the qualification of the loan recipient to merit the loan, the credit analysis, and the number of lenders used to achieve the desired loan amount are all variable.
The Amount of Business Loans
A business might seek to borrow money for many reasons which may include, but is not limited to: making up a shortfall in operating capital, expanding an existing business to another location, developing an area or new idea within an existing business, or creating an entirely new business. Each need has its own set of variables and prioritization of those costs.
What interest rates are applied to a Business Loan?
Primarily, the lender will assess the interest rate on what they determine to be the RISK. This will be calculated upon the cost rate of the lenders money, the recipientís credit history, the presence of collateral, and the venture's risk.
Repayment schedule for a Business Loan
Determining a business loan's repayment schedule will hinge primarily upon for what the loan is being used. If the loan will be used to acquire land, plant or equipment of a tangible nature then the repayment schedule can be based against the borrower's needs balanced with the lender's requirements. Usually the repayment schedule will consist of equal total payments per time period (amortization); equal principal payments per time period; or equal payments over a specified time period with a possible "balloon" (balance) payment due at the end to repay the balance. When the business loan is unsecured or to be used for operating capital, a new venture, or expansion, the repayment schedule will be shorter and have less flexibility due to the higher inherent risk.
Qualifying for a Business Loan
You will need to provide data which both justifies issuing the loan and demonstrates the ability to repay the loan comfortably coupled with a concise business plan with attached contingency plans and highlighting security available to minimize risk.