Business Loans – Loan for Business – Financial Accompaniment
As a business owner, this scenario is familiar to you: the moment you realize that there is no choice but to go to the bank branch where your account is managed and ask for a loan of one size or another, which will allow you to have a proper cash flow – at least for a certain period of time. What is important to emphasize is that you have just entered a very broad field of play, if only because there are quite a few options in choosing loans for the business.
This article discusses the common possibilities of taking loans for businesses, with important emphasis on each.
In each case, it is recommended to define as the first step the amount and the duration of the repayment period, according to the needs of the business at the current point in time and its repayment ability.
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The main types of business loans (or : specific repayment method)
The loans are divided into four main groups. First, there will be balloon loans, in which the principal and interest pays the borrower at the end of the loan period (the loans are machinery so that they grow throughout the loan period). Such an option would be especially suitable for business owners who need money at a certain point in time and know that in the future they are supposed to receive a defined amount of money. In most cases, the lender – usually the bank – will examine the source of the future funds, and especially the probability of its financial realization, sometimes as a condition for approval of the loan.
The second type of loans for a business is Grace loans, whose basic principle is the payment of the interest only on a regular basis, while the loan fund began to be paid after a certain period, in one payment or in several installments. This loan is also suitable as a bridge loan or intermediate loan.
On loans based on repayment of fixed principal payments. In loans of this type, each installment consists of relative and equal portions of the loan amount to which the periodic interest is added to what remains of the fund. In other words: here, the first payments will be high, but will gradually decrease, together with the fair in interest amounts. This loan tends to choose business owners whose repayment ability in the present, they believe, will be greater than the future.
The last type is a loan with equal periodic repayments, also known as a “Spitzer Table” loan – in fact, this is the most common loan today. The principle here is that each periodic payment of the loan is identical and consists of principal and interest, with the progress of the payments, the principal component of the repayment increases and the interest component decreases. The calculation of the fixed refund is done in accordance with the amortization schedule, as well as with other financial calculators. This loan will be suitable for businesses that believe there is no difference in their repayment ability in the present versus the future.
How do you calculate the interest rate of a business loan?
When it comes to calculating interest on the loan, it is customary to distinguish between five options. The first type, which is not overly common, is a fixed rate loan, which is not indexed. The problem here is that the interest rate is not only fixed, but usually high, so that the lender will not suffer from changes in the interest rate in the economy. Along with stability in repayment amounts, the method includes several disadvantages, such as a possible decline in interest rates, or alternatively, a particularly high repayment commission.
There are currently two types of indexed loans, the next. The first is based on fixed interest, determined in advance but linked, together with the principal, to the consumer price index. Such a loan will be suitable for periods in which the interest rate is relatively low, while the risks are high inflation, a decrease in the interest rate and an early repayment commission that is not canceled. A floating-rate floating-rate loan is based on the fact that the principal and the interest rate are linked to the CPI: the interest is determined at the starting point of the loan, but it varies from each period set in advance according to the change in interest rates. The borrower enjoys a low interest rate at the beginning of the road and allows the loan to be paid, at the time of the change, without payment of a commission. The main risk here is an increase in the interest rate and commissions on repayment that is not at the change points.
The fourth loan is a loan that is not linked to a prime interest rate, ie, one in which the interest rate is determined according to the prime interest rate and is found at a fixed spread thereof: any change in prime interest will affect the loan. On the positive side, the borrower enjoys a decrease in the principal of the loan or interest rates, as well as the possibility of repayment without commissions. On the other hand, scenarios such as an increase in the interest rate or significant fluctuations in the repayment level can be mentioned. Therefore, it is especially suitable for flexible and peaceful.
The fifth and final type is a foreign currency linked loan whose interest rate is fixed.The difference between it and the fixed-rate linked loan is that the interest rate and principal of the loan are indexed to foreign currency, which has been defined in advance, and will be suitable mainly for a business owner whose repayment sources are also linked to the selected foreign currency. Typically, an early repayment of the loan can be made without a commission.
In each case, it should be noted that it is crucial to conduct intelligent negotiations with representatives of the Bank, or even to conduct a market survey with other banks. Of course, at any moment you can use the services of a financial consultant, who can direct the business owner towards the ideal decisions for him.