Anyone who manages a business, regardless of its size, knows that it is often necessary to seek third-party capital to boost results or resolve outstanding issues. In this context, seeking a business loan can be a good strategy.
This type of credit is exclusively intended for legal entities and is divided into several types. This way, it is possible to find an alternative that is suitable for the business needs.
Business loan
The process involves the applicant visiting the financial institution to review the loan agreement’s terms and conditions. After that, he submits the request, and if it is granted, the bank gives the business an upfront loan. These sums can then be used by the business in accordance with its strategy and requirements.
Since the money is borrowed, the legal entity will need to repay the amounts. This happens through recurring payments — usually monthly — until the debt is paid off with the financial institution.
Since each financial institution has its own conditions, there is no standardized amount regarding the interest charged. Therefore, it is essential to research the alternatives to check those that have the best payment conditions and the lowest total effective cost (CET).
What is the loan for?
If the payment of the loan installments adds up to a greater amount than the money lent to the company, what is the purpose of this credit?
The main purpose of a loan is to enable or advance the use of a large amount of capital. Therefore, there are several financial objectives that can be facilitated with a loan.
Imagine that a business has expansion plans, with hiring employees and purchasing new machinery. For this strategy to work, it is necessary to take advantage of the current market situation and new consumer demands, getting ahead of the competition.
Often, the company does not have enough capital to carry out this expansion. If it plans to raise money over time, it may miss the market timing and not have such positive results.
In this example, a loan can meet management needs, enabling the business to increase production and modernize.
In addition, there are several other situations in which a loan can be used advantageously. A common example is the payment of bills that, if late, can result in the inclusion of fines and interest on arrears.
In these scenarios, it is possible to check whether the loan conditions are more beneficial than the costs of late payment. If so, taking out the loan helps to reduce the company’s potential costs.
What types of loans are available for companies?
Check out the main ones:
With real guarantee
The first type of loan that deserves mention is the one with real collateral. Here, it is important to know that financial institutions need to minimize the risk of default when offering loans. After all, it represents the chance that the borrower will not pay the installments and incur losses.
Requesting an asset that will be used as payment in the event of a borrower fail is one method of securing the contract. In this case, a property registered in the company’s or a business partner’s name serves as the true guarantee.
With this guarantee, the financial institution reduces its credit risk and will even be able to offer better payment conditions to the company.
With car warranty
The loan may also be secured by an automobile. However, because the asset is usually worth less than real estate, the terms are not as favorable as those for a loan secured by real estate.
However, a car loan is still more beneficial to the financial institution when compared to offering credit without collateral. In this way, it can be used to reduce interest and other fees applied.
For working capital
Finally, it is worth mentioning the working capital loan . It is intended for companies that need to improve their cash flow to pay operating costs for a given period.
This type of credit usually has different conditions than other loans, such as less flexible repayment terms and reduced amounts. This allows the company to meet its obligations, maintain its activities and not have such a high debt to pay.
In any case, it is worth understanding that each financial institution has its own conditions, which vary according to the type of loan. Therefore, you should always evaluate each alternative and define the most advantageous one for your business.
How to choose a business loan?
When choosing a business loan, the main tip is to carry out good financial planning and define the business needs. By adopting these measures, managers avoid taking on unnecessary debt.
Furthermore, as we have seen, researching in several institutions is a practice to consider. Therefore, always evaluate the interest charged, the payment term, whether there are other fees included and the approval procedure.
The securitization company makes a cash payment to the company, “buying” the receivables. This way, there is no need to return amounts, get into debt or have other financial obligations that are more common in loans.Â
Have you understood how a business loan works, what it can be used for, and how to choose between the different options? Don’t forget to carefully assess the need for credit and consider alternatives that can bring more benefits to the business.
