What is Small Business Loans? Explained.....

Small business loans are usually bank loans. People who are just starting out in a small business like to approach banks for financing because they provide a certain amount of security. Generally, these loans are what are known as term loans. The concept of this type of credit is really simple: it is of a fixed duration, which means that the amount must be repaid within a stipulated period of time. Generally, the amount is also amortized.

What they are

Amortization basically means that the loan must be paid in installments, which will cover both the loan amount and the interest calculated on the loan, based on the rate charged by the bank. Term loans generally fall into two basic categories and it is important to understand them before applying for a small business loan. These two categories are: short and long.

As is obvious, in the case of a short-term loan, the amount must be repaid in a short period of time, usually one or two years. But long-term loans are for much longer periods of time, maturing in one to seven years. Many times, the repayment period of these loans extends to decades!

Application process

Generally, the approval process is very thorough, so be prepared for a very difficult selection process. As an applicant, you need to be able to show that you have good character, are competent and can run your business, and have a fairly good credit record. In fact, this process is similar to any other process of obtaining a loan because banks take into account the same factors, in the case of a term loan.

The good news is that if you are eligible for a loan after this screening process, your interest rate will generally be lower than any other type of loan. For an established small business, it is a good idea to take a long-term loan or an intermediate loan. But keep in mind that your bank will require an impeccably clean financial statement for long-term loans.

Another thing to keep in mind when applying for a term loan is that banks usually limit the responsibilities that your company can assume, in addition to the loan. This may sound simple enough, but it can cover all aspects of your business, for example, your employee salary! So, carefully weigh the pros and cons before applying for a small business loan.