Wednesday, March 4, 2009

A Guide to Business Loans

Posted on/at 7:16 AM by Wanto

By Richard Dalton

Most businesses need to borrow money at some stage. They may be looking for a start-up loan, money to expand or some cash to buy equipment or machinery. In order to do this most businesses will take out some form of business financing at some point and there are many different types of loan products that they can choose from here.

As with consumer loans a business loan usually involves approaching a lender for finance and then reassuring them that you and your business can pay it back. The money that you are lent will have interest added on to it so you will end up paying back more than you borrowed.

In many cases the business loan that you apply for will specify a regular repayment schedule that you will stick to until the loan and its interest are repaid in full. In others you may take out certain types of loans that allow you to borrow money for a specific period before repaying the loan and its interest in one lump sum payment at the end. And, in others you may make smaller regular repayments and a large 'balloon' payment at the end of the loan term.

The actual terms that you get here will depend on your lender, your business circumstances, how much you want to borrow, how long you want to borrow it for and what you will use the money for in the first place. They may also vary on whether you take out a secured (i.e. with collateral backing) or an unsecured (i.e. without collateral backing) loan product.

Term loans (i.e. loans that last for a specific period) are one of the most commonly used options here. So, for example, you could arrange to borrow a specific sum of money for a specific period of time. Here, you will be paid the money up front and repay it and its interest regularly to a schedule over the time that the loan lasts.

Another popular loans option is a line of credit. With this kind of borrowing you don't lend a specific lump sum to start with but come to an agreement with your lender that you can borrow up to a certain amount of money as and when you need to over a period of time such as a year. This kind of loan may never be used but can be useful if you have a cash flow shortfall or unforeseen expenses.

There are also various specialist types of business loan products that might suit you. You could, for example, take out a package to help you with specific equipment financing. The types of lending that your business takes on here will vary according to your actual needs at any given time.

As with any loan it is recommended that you think carefully before choosing the kind of business loan that suits your needs. Your aim here should be to get access to the money you need at the best possible interest rates and with terms and conditions that suit your business.

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