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Business loan refers to the transfer of funds from a lender, usually a financial institution, to a borrower. In this case, the borrowers are the businesses and the financial institutions are the banks. The interest to be paid and the repayment schedule are decided by the bankers and the borrower agrees to those terms. Lenders can offer unsecured or secured loans. Secured loans require collateral, which is usually personal property, such as the borrower’s home. However, when talking about business loans, the collateral is something owned by the business – machinery, real estate,
There are many reasons for obtaining loans for businesses. Some may need additional funds to expand the business, or offer additional services, while others will need funds to make various small or large purchases. Lenders take certain factors into consideration while extending these loans. First, they will check the creditworthiness of the business. They will also evaluate how successful the business has been and how likely it is to be profitable. Getting a loan for a new company is indeed very challenging, and the credit history of the individual borrower is almost the only criterion for taking the decision.
As the lender would naturally want to be sure that the borrower has the ability to pay back the money borrowed, borrowers need to meet some very strict conditions in order to obtain the loan.
If the risks associated with debt are high enough, it is usually a better option to seek investors from within the family or social circle who can lend money or buy a share of the business. Banks are definitely not willing to give high risk loans. Small businesses needing small loans can check with government sources that lend the money, or other microlending companies, as their perks for lending are not as onerous.
Businesses that get a loan when they start up have the advantage of building their credit history as their business grows. In the case of personal loans, businesses must also ensure to pay back the borrowed funds within the stipulated time. Failure to make timely payments damages the credit history of the business, making it difficult to obtain any business loans in the future. Banks and other lending institutions consider not only the credit rating of the business, but also its past profits as well as the profits made by the business when they are granted loans.
As far as US citizens are concerned, those looking for a loan to start a new business or continue with an existing one should look into a good source before approaching any bank. The US Small Business Administration is a government body that provides financial assistance to small businesses. While not everyone can be assisted through this program, one must definitely make an honest effort and make efforts, as the loans available under this program carry low rates of interest, and the loan repayment terms are so tough. does not happen.
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