Commercial Loans - What Qualifies As a Business Loan

Commercial Loans - What Qualifies As a Business Loan

Those planning on starting a business or need some additional capital for funding an existing business can take out a business loan. This loan is unique because it only applies to the business entrepreneur. Most business loans have a re-payment schedule with an interest rate applied to each re-payment.

Before one applies for a business loan, it is important to take into account how much is needed, the time it will take to re-pay, the amount of interest, and of course what you need as collateral in order to make the loan.

Amounts that can be loaned to business owners will vary. The need for the loan is usually the most determining factor. Needs for a business loan include funding for projects, expanding, or as simple as start up money for a good idea.

The amount needed will be determined by the business owner. The size or equity in the business is also a determining factor. A big company and a small business will differentiate greatly in the amount needed for expansion. The bigger the idea and plan is for expansion,the more money will be required to loan.

To determine your interest rate, banks will need to see how much co-lateral is in your business to seize in case you fail to make loan re-payments. Also, the business plan for expansion needs to be sound. Last but certainly not least, the bank needs the borrower's credit approval. Something to also consider is that the government sets a cap on how high the interest rate lenders can impose on borrowers.

Lenders first look at the reason for the loan and work from that point. When the loan is approved, the next step is to iron out the payment schedule for satisfying the debt with interest.

There are some options to consider when repaying a loan. One way is to pay back a certain amount for a period of time, known as amortization. Usually these payments are of the same fixed amount. Another option is to have a minimum payment due each month but still having the payment with interest due in its entirety at the end of a fixed time period.

If you are the owner of a small business, you may be able to use personal property as collateral to satisfy the lender. It is important to realize that the collateral used, personal or business, can determine the amount that the lender will give. Remember that the type of collateral used can determine the maximum allowable amount that can be loaned.

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