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Business loan secured or unsecured, business commercial loan and business loan start-ups are some of the words you will be used to hearing in the near future because of immense importance of finance to fund modern businesses.
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Business loan secured or unsecured, business commercial loan and business loan start-ups are some of the words you will be used to hearing in the near future because of immense importance of finance to fund modern businesses.
The other question that creeps into the person’s mind is how much money he can borrow and from whom. There are various sources from which a businessman can borrow business loans like the banks, non-banking financial services, venture capitalist etc. The loans provided by banks are called ‘bank business loans’. Usually bank business loans’ are distinguished short-term loans and long-term loans. Loans, which are taken for less than 1 year, are called as “short term loans” and loans, which are taken for more than a year, are termed as “Long term loans”. Any organization, which lends money, firstly reviews the financing needs of the borrower i.e. the person taking the loan. The cash flow statement of the company is also studied so that the structure of the loan that suits the businessman’s company is devised.
Most business experts acknowledge that if a business loan is needed for an already established business, then 100% financing is possible. In the case of startup business the borrower has to contribute some percentage of money usually such loans are termed business loans startup. Some lenders may charge a ‘guarantee fee’ of 3.75% of the loan. Normally this fee can be financed as the part of the loan. Some of the other expenses that a borrower has to bear are attorney fees, appraisal fees, and environmental fees.
In any business loan transaction like a startup business loan, a bank business loan, the documentation that is provided by the borrower to the lender determines whether the loan should be granted or not. Some of the documents that need to be presented with respect to business grant loan or a business commercial loan at the time of applying are the last 5 years’ company’s financial statements that include balance sheets and the profit and loss statements, income tax documents, assets valuation receipts and many more.
From the day of application, organizations provide the commitment letter for business loans within 10 days and they are able to close the loan within a month. The application process is very lengthy; one of the processes involves the borrower filling up the application form. In this form the borrower has to disclose information like the levels of industry experience, type of business being operated, breakdown, cost of the project, list of the collateral securities that the borrower is ready to keep against the loan and corporate tax returns for the business that has to be financed. On submission of this application form, the borrower will receive a prequalification letter. This happens only if the lender is satisfied with the details given in the application form. A prequalification letter is not a commitment and it does not contain the final terms and conditions of the loans. After scrutiny of the documents submitted by the businessmen the lender gives a commitment letter to the businessmen. In some cases the lender requests for a ‘good faith deposits’ (GFD) this is provided by the third party and the borrower has to sign the Prequalification letter and submit to the lender along with the GFD. After this the lender verifies the third party reports such as income statements, environment reports, and judgment searches. The last part of the loan process is evidently the closing phase. It usually starts 2 days prior to when the actual closing of the loan takes place. During this phase a final review of the documents needed to close the business loan is done, and the business loan is closed or said to be granted.
Taking a business loan is a tidy and lengthy process, but people still prefer it to float their business when they are short of funds. There are many success stories of past that are associated with taking a business loan and making good use of it. One such story is of a person named Mozafar Rafizadeh, the founder of ‘Nirvana Inc’, the company famous for selling bottled natural spring water. Mozafar had a land, which had a very important resource that is water. He knew that he can sell this water and make a business out of it. One year after the company started the company began to face problems with their bank. The company’s financial activities were at threat because of this. Mozafar then, opted for a business loan from non-bank financial services. They were able to acquire 2 big loans worth $5,000,000 from this organisation. This enabled Nirvana’s expansion operations, which were on a hold for a very long time. Due to the financial strength from loans, the company was able to expand its business considerably.
Disclaimer- While there is no guarantee that you will get a loan, history has shown that these processes have helped other business owners.
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