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In terms of business loans, the following types are distinguished on the market:
The debt is repaid by the client increasing the account balance by the amount borrowed (ie, as much as minus) + interest. In most cases, this is due to an incoming payout that will fully or partially cover the interest-bearing debt.
- Investment loan. They are designed primarily for the expansion of business and the necessary purchase of new technologies, real estate or its reconstruction for business, etc. It is, therefore, an investment in the future of the company. They usually have longer maturities than operating loans, ie 15 – 30 years.
- Operating credit. These are used to ensure the day-to-day operation of the plant, it is suitable for supplying, securing materials for daily production, etc.
- European Investment Fund (EIF) guaranteed the loan. This loan concerns the financing of investments, similar to investment loans, but the money is drawn from the EIF. It can be used by medium-sized and small enterprises with up to 250 employees and an annual turnover of up to $ 1.3 billion, which, although they have an interesting investment idea, but cannot afford (do not have sufficient assets) to guarantee the investment to the bank. It is also suitable for entrepreneurs whose investment involves a higher degree of risk.
What are the conditions for arranging and drawing a business loan?
The terms of the credit agreement depend mainly on 3 aspects of your business:
Your business idea. Think well with a cool head of business, conduct market research in advance, prepare documents for the bank to show that it makes sense. Answer questions such as:
- What is my investment?
- What do I want to achieve in my business and how specifically does this or that investment help me?
- Is my goal realistic considering the required loan amount?
- Why did I choose this investment on my business trip?
With enthusiasm! Show the bank that you have an idea of what you’re doing. But it’s not just about convincing the bank. You should feel that the investment is the right thing to do. Don’t foolishly paint reality more colorful than it is, and believe that even in smaller steps you will reach your great goal. But beware of quick decisions under the weight of emotions (as is already the case in the financial sphere), give your business plan enough time and space.
- Long-term business performance. You should be able to prove to the bank (eg account movements) that your business is long-term capable and that you have not had any difficulty repaying your loans in the past.
- Guarantees. As with any loan, the bank requires some collateral, a guarantee from you. Carefully consider what kind of guarantee the bank can offer for a loan, always count on a more skeptical scenario on the financial market in the future.
Finally, some useful tips…
- At a time when your business is flourishing, also think about securing your financial and hence the ability to pay in case of poor times, creating reserves is useful not only in the sphere of personal or family finances.
- Remember that interest is not everything. Rate the APR above when bidding across banks.
- Do not hesitate to choose one specific bank. The offer on the market is really varied, so give your choice the time and consider carefully.
- If necessary, saving is one of the appropriate refinancing procedures (ie transferring a loan to another bank with different terms), which will save you considerable sums. Here too, choose with a cool head, watch the APR, or be afraid to consult an expert.
- It is not a matter of negotiating a loan with several banks, possibly with non-bank providers (but always beware of fraudulent offers “credit predators”!). When negotiating a loan, it is always appropriate for entrepreneurs if the bank is aware that it still has competition.
- Consulting a financial advisor is a good thing to get information or other insights, but don’t let him act completely for you. You should negotiate with the provider personally, it is your business, your efforts and your goal, so do not leave it in someone else’s hands.