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Merits of Business Loans
Business lending involves banks or financial institutions offering loans to businesses once they ascertain their capability to pay back the loan at an interest. Financial institutions prefer to give loans to business as opposed to individuals due to their capability to pay on time. Once a bank issues a loan to a business it does not take any ownership of the business but it gains by charging interest on the loans given. Lending business is beneficial to both banks and businesses. Central bank sets the percentage that is supposed to be charged as interest by the financial institutions depending o the time the loan will take to be cleared. There are different loans given to businesses such as working capital loans, fixed assets loans,factoring loans and hire purchase loans. This paper will articulate the importance of business lending.
The business is able to use the money as to start operations. Money is required by the business to start its operations. Money could be sourced from different sources. One way of getting money is taking a bank loan. Business loans are good since the business may lack enough funds to start on heir own and the business loan may help the business start.
A business may use the money from the bank to grow itself. Once the business has been set up it might need more cash in order to grow or expand. Since the business may not be able to raise enough money for growth it can go to the bank and get a loan. We all know it is important for a business to keep growing in order to avoid dying. There is more productivity in the business as it grows and this is of benefit to its customers as will as all stake holders.
A business may want to purchase expensive equipment or asset for the business. The business will have to go to the bank to get a fixed loan to purchase the asset and the asset will be the guarantor. The asset will guarantee itself on the loan. This will benefit the organization as it will be able to purchase assets that on its own would not have afforded. This equipment will be used in the day today running of the organization.
The business has the knowledge of how much interest it is supposed to be paid on a monthly basis. This is necessitated by the bank offering a fixed term loan repayment period. The business is therefore able to pan itself for repayment of the loan.
Business lending is good because the repayment period is calculated depending on the amount loaned. The bank does not require the business to pay back the loan at one go. A duration of time is agreed upon during which monthly installments are made. The business and the bank agree on the repayment period that could range from one to ten years.