You can apply for a business loan if you intend to use the loan for business purposes. You may want to start a new business and need funding to launch your business. You may already have an existing business but you need extra cash-flow or want to purchase equipment. You could use the business loan to hire staff, renovate, expand, buy equipment, purchase vehicles, purchase a commercial property or fund day-to-day operations. As with a home loan, you can choose to pay a variable or fixed interest rate.
Types of Business Loans:
Line of Credit/Overdraft:
Business Line of Credit (Also known as Overdraft) can be negotiated with a lender which allows you the flexibility to draw from the facility as you need it. The lender and borrower (you) negotiate a maximum credit limit and terms of payment, while you only pay interest on the amount that is used. Businesses can use the line of credit or overdraft as a short-term solution to fund unexpected expenses or tide it over when it encounters cash flow shortfalls.
Term Loan (secured or unsecured):
A term loan is offered to a business for a set period of time, usually for 5 to 30 years. The funds can be used to buy equipment, purchase a commercial property, buy another business or cover other business costs, and the company is expected to make regular monthly payments over the negotiated loan term. A secured loan is a loan that is issued on the back of an asset (usually a property) held by the business. The bank has the option of recovering the funds by selling the asset in the event of non-payment.
Lease financing (Asset finance):
A lease financing agreement allows the business (the lessee) the right to use a particular asset for a predetermined period while paying the owner or bank (the lessor) a regular payment (rental) over that period. The business usually has the option of buying or refinancing the asset at the end of the period if there’s a residual lump sum left.