A business loan is a form of credit designed to fund the various capital needs of a business. Using different types of business loans, companies can scale new heights with increased manpower, advanced equipment, and faster turnaround time and profit.
How Does a Business Loan Work?
A typical structure of a business loan involves a lending institution extending capital to a business owner, for which interest is charged. The business owner must pay back the business loan amount along with the applicable interest; in the form of Equal Monthly Instalments (EMIs), over a predetermined period of time known as loan tenure.
3 Core Components Make Up a Business Loan
Principal Amount – Also known as the loan amount, the principal is the sum of money a business owner borrows from a lending institution.
Rate of Interest – The rate of interest is the cost of borrowing the business loan, generally expressed as a percentage of the principal amount. This is the amount that you need to pay in addition to the principal loan amount.
Loan Tenure – The tenure is the period for which the business loan is borrowed. Business loans tenure is calculated from the date of first disbursement till the date of payment of the final disbursement.
Read More : 8 Questions to Answer Before Taking a Business Loan
How to Apply for a Business Loan
Another more straight forward option for financing your business or startup is to get a business loan. If you decide to go this route, you’ll need to get organized and know your credit history. It’s also important to be transparent as you work with lenders for a loan. They’ll want to know exactly why you need it, and how you plan to use it whether it’s for everyday expenses or to support your business structure.
You can apply for a business loans with,
Banks – These are a good option if you have collateral, good credit and don’t need cash immediately.
Nonprofit Micro Lenders – If you can’t get a loan from the bank because your startup or company is too small; you can seek out smaller lenders to help.
Online Lenders – If you don’t have collateral and need funds as soon as possible. You can look online for investors in startups.
The Small Business Administration – SBA loans are funded by lenders that work with the agency and can often give you a longer time for repayment.
Seek Out Government Grants & Subsidies
Free money for your business probably sounds like a dream right? With government business loans and grants, it doesn’t have to be. Many grants are only open to specific industries or demographics, though. This means some may only be for startups in science, technology or health fields. Others may be programs for women-owned startups.
Read More : How to Get Your Business Funded?
Some grants also act as minority incentives for starting a business or focus on enterprise zones. Which are areas where the government is encouraging development. Often, the government wants to offer incentives for new businesses to increase economic growth.
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