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Business Loans

Business loans are commonly sought during the start-up and growth phases of a business. They are also often applied towards the purchase of additional inventory, motor vehicles, equipment, tools, property as well as cash flow improvement. Certain business loans may even be used to finance trade operations, including importation, exportation and domestic trading.

When applying for a business loan, the business owner should provide potential lenders with information about the loan amount, its purpose and term length. It is also important to specify whether the amount will be needed upfront or at call and if any assets (e.g., residential property) will be offered to secure it. If an at call loan is sought, its desired overdraft limit (i.e., line of credit) should be noted and explained. All of this information is typically provided in a detailed business plan and proposal.

An upfront loan will usually need to be repaid at regular intervals and with interest. The longer the loan's term, the more interest the business owner will pay. Conversely, an at call loan has no fixed term, allowing the business owner to repay the borrowed amount (with interest) when he or she is capable of doing so.

Loans with high overdraft limits may also incur high interest or credit advance fees. Loans might also carry application, setup, exit, service and early termination fees. Lenders can sometimes insert clauses that require repayment of the entire loan at any time. Likewise, some loans are provided at a variable interest rate, exposing the business owner to the risk of paying more interest over the loan term.

Lenders ask many questions and assess several factors before approving a business loan. Business cash flow is particularly important, since this is the money that is left over after expenses are paid off and can be directly applied to loan repayment. Other outstanding business loans and debts are also noted. Finally, the level and type of security offered is weighed, since lenders have the legal right to seize the security in case the loan cannot be repaid.
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