As a potential business owner or an existing one, you know that any type of loan, whether emergency business loans or a small business loan is based on this fundamental idea – someone lends you money for opening the business or buying equipment and you promise them to pay it back, usually with interest. Because you are obliged to pay the lender whether your business is doing great or a miserable failure, the entire risk of taking your business to the next level is upon you. Obviously, nothing in business is without risk. A lender will deny loan if the odds of your repaying it back are low. If this is the case, the lender will very likely ask for assurance from you in the form of pledge, securities or anything that is valuable.
In short, if you are confident about your business’s ideas and future, you will have many opportunities to obtain the loan amount you need. This means, lenders will be more attractive to your business and lend you money without hassles. On the other hand, if you can’t guarantee the loan personally or in any other way, they will hesitate.
Business loans are available everywhere that you are familiar with how it works, but it makes sense to review the basics just in case. A lender will always want you to sign a promissory note that says you promise to pay back all the amount that is lent to you along with interest within a given time-frame. If the lender is a bank or other commercial institution, you will have more papers and agreements to sign. The basic idea behind this promissory note is the same. In some cases, a friend or relative will be willing to lend you money but note that it is always a good idea to put everything on paper to be on the safe side. Otherwise, you are opening the door to an unfortunate misunderstanding that can unnecessarily ruin your relationship with the lender. It is also safe to sign on the original promissory note; you don’t want to sign papers that don’t look legitimate, that can cast doubt on whether your debt is paid in full or not.
The next thing in the process of obtaining a loan is devising a repayment plan. As long as the interest rate doesn’t exceed the allowable rate, you and your lender can negotiate and come up with the terms of your repayment as you both like. Typically, business loans carry higher interest rate compared to personal loans, but your lender may be able to offer you a lower rate if the business has a bright future. Again, all these depends on your repayment ability as well.
You can repay your loan in any way that is suitable to your situation and as agreed by the lender. With lump sum repayment plan, you opt to pay principal and interest in one lump sum at the end of the year. With periodic interest and lump sum repayment, you choose to pay interest only for a certain number of years and then pay the principal. Amortized payments allow you to make monthly payments so that principal and interest are fully paid within the specified time. Note that, most business loans are offered for a 5 year or 10 year term, unlike personal or residential loans.