Business loans can be defined as borrowed funds that are used for a wide range of business operations and expenses. These funds are borrowed by startups as well as running businesses under specific terms and conditions from various banks, private lenders and financial institutions. They use the fund as a capital, for acquiring or expanding a business or even for taking austerity measures under specific circumstances.
The key terms to get familiar with before applying for a business loan
Before you apply for business loan, you must get accustomed with the following terminologies:
Cash Flow: It is the net amount of money that goes in a business or out of it through day to day business operations.
Closing Costs: There are certain types of business loans for small business that may have certain fees & costs associated with the security of the loan itself. Lenders generally provide a list of closing fees to the borrowers, so that the latter is not caught off guard. They may include filing and recording fees, title insurance, tax monitoring fees, environmental site assessment, loan packaging fee, the origination fee, and so on.
Collaterals: Collaterals can be defined as any form or kind of asset owned and offered by the borrower as a security to the lender, against which the business loan can be obtained. Upon failure of the borrower to pay back the loan, the borrower can rightfully acquire these assets or collaterals.
Down payment: A down payment can be termed as an amount of cash, which the borrower contributes upfront to the business. Down payment requirements may typically range from 10 to 30 per cent of the principal balance. However, it depends on the type of online business loan, as well as the other qualifying factors.
Rate of Interest: The rate of interest can be defined as the percentage of the principal amount of loan that is applied to the total amount that is borrowed. This percentage is paid back on a monthly basis over a certain period of time.
Repayment Schedule: It is a preset plan or an amortization schedule that is maintained or followed when it comes to repayment of the loan on a monthly basis. Generally, the amount that is paid monthly includes the interest and a certain percentage of the principal amount of the loan taken.
Personal Guarantee: Lenders might at times need the businesses or the individual borrowers put down their signature on to a personal guarantee agreement for approval of business loans. This agreement covers the use of personal assets as well as the cash flow as collateral to cover up a loan if the borrower fails to repay back the loan.
Conclusion
So you see, you need to know and get familiar with these terms before you apply for business loan, to be on safer side.
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