A loan is money borrowed to pay a fixed amount over a period of time. The interest rate and size of the loan will affect the amount you repay.
These are the most common uses for loans:
Assets – eg cars and computers – to be paid
Start-up capital
In certain instances, the amount of money that you require is set in stone.
The terms and pricing of loans vary from one provider to another. They will reflect the risk and costs to the bank when providing finance. Higher amounts of money may require a negotiable pricing and terms.
Banks will lend money out to businesses only if they are able to provide a sufficient return for their investment. This allows them to take into account the risk of default and pay administrative costs. Your bank will be able to get to know your business better if they have an established relationship. This will enable them to help you choose the best product for your financial needs.
There are several types of SL lán available:
Working capital loans are available for emergency situations and short notice.
Fixed Asset Loans – Used to purchase assets when the asset is collateral
Factoring loans are loans that are based upon money owed to you business by customers
Hire Purchase Loans – For long-term acquisition of assets such vehicles or machinery
Term loans offer many benefits
The loan cannot be repaid immediately and is therefore only available for the length of the loan (generally three to ten years) unless you violate the loan conditions.
The loan can be tied to the asset’s lifetime.
A repayment holiday is a way to pay off your capital while you pay interest only for a specific amount of time.
You must pay interest but you don’t have the obligation to give the lender a cut of your profits, or share in your company.
The interest rate may be fixed for the term. You will know how much you have to repay over the course of the loan’s life.
A fee for arrangement may be charged at the beginning of the loan and not over its lifetime. A renewal fee for an on-demand loan may be due.
Loans have disadvantages
Certain covenants and terms will apply to larger loans. For example, you may have to provide quarterly management information.
The loan terms aren’t flexible and you might be charged interest for funds that you haven’t used.
Customers who don’t pay on time could make it difficult to make monthly repayments, which could lead to cash flow problems.
Some loans may be secured against the business’s assets, or your personal property (e.g. your home). Although secured loans are typically less expensive than those with unsecured interest rates, your home and assets could be at greater risk if you fail to make the repayments.
You may have to pay a fee if you need to repay the loan prior the end of the loan term.
Loans that aren’t suitable
For ongoing expenses it is not a good idea. You may find it difficult to repay the loan. For ongoing expenses, it is best to use cash earned from sales and possibly an overdraft.
You have other financing options if you are unable to get a loan or any type of finance from your bank.
