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A loan in terms of small business finance is a sum of money advanced to a business that must be repaid, with interest at some point in the future. The lender must bear the risk that the borrower may not repay the loan. The interest rate charged is the price for that risk. A loan is money, classified as debt, for temporary use.
A business has to apply for a loan through some lending organization. A lending organization might be a commercial bank, credit union, or other lending organization like a thrift institution or an alternative source of loans for businesses. Loans may also be guaranteed by the Small Business Administration which usually makes them easier to obtain.
The loan application is different from every lending organization but it has common elements. The lending organization usually wants to know the background of the owner or owners of the business and the financial condition of the owner or owners, and the business, before giving the business/owners a loan.
A loan is made to a small business for many reasons. The loan may be for working capital and purchases of equipment or buildings and land. Interest rates on a loan depend on a variety of factors as do the terms of a business loan. Businesses have to be creditworthy in order to be granted a loan. |
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