Business Loans: An Introduction To The World Of Corporate Finance

Business loans are the ideal way for companies to find the initial capital for start up costs. Fundamentally they come in two distinct varieties; secured and unsecured. Secured loans are typically secured against an asset, which can be in risk if repayments are not met. Unsecured loans on the other hand are not placed against an asset but do have the downside of higher rates of interest. For those choosing loans, the process of poring through financial literature can be tiresome, making it difficult for companies to make the right decision.
When choosing business loans it is always advisable to make an effort to negotiate wherever possible. Many banks will individually tailor a loan to the needs of a company. If it is possible to find a common ground it should be possible to obtain a loan that fulfils the needs of the company whilst remaining financially viable. Items such as the rate of interest and the borrowing period are both key elements in choosing the correct type of financial package. Obviously the ideal is a low rate of interest combined with a relatively short borrowing period.

That said, the borrowing period does not have to be fixed. Most loan companies and banks will allow borrowers to adjust their agreement throughout the lending timeframe. The times at which a loan agreement can be altered vary with the lender although usually they come at regular intervals.

As well as unsecured and secured varieties there are a number of different borrowing options that make the choice of business loans even more confusing. The following paragraphs will detail some of the varieties available to borrowers.

Lines of credit are a type of borrowing frequently used by companies. It is a versatile and flexible means of borrowing that allows companies to gain funds as and when they need them, simply paying the interest on the outstanding balance. Ultimately this type of borrowing suits companies that have a variable income, and need to borrow finances during slow times in the year to maintain a effective cash flow.

Business credit cards, whilst not the ideal for companies that need to borrow a large sum are perfect for the day to day payments that go hand in hand with running a company. For example purchasing stationary supplies or having lunches and dinners on a credit card can be beneficial, as long as the balance is paid off at the end of the month.

For those starting out however the traditional forms of business loans are probably the best option. They supply the initial capital; needed and allow the company to get up and running, renting a property and employing members of staff. It should be remembered however that most banks will require a detailed business plan before giving the green light to any lending. Subsequently the business model for any company wishing to borrow has to be viable.

This article is in no way intended as a complete guide to the world of financial assistance. The subject is vast and this simply acts as a brief introduction to the types of loans out there. The main point to be taken from this piece is that before borrowing anything it is worth taking the time to research what is available and how it will affect the growth of the company.