Business Loan Overview

The most appropriate use of a business loan is if you have a number of assets to purchase immediately whether you are starting a new business or expanding an existing one. If you do not need the entire amount of capital that you are seeking at the onset of operations then you may be better of seeking to apply for a business line of credit. However, there can be many benefits of receiving all of the funding that you need in one lump sum rather than drawing down a credit line.

Foremost, a business loan can rarely be revoked by the bank or financial institution that provides you with this debt. This is primarily due to the fact that when you apply for this type of funding, it will be used almost immediately after you receive the capital. With a revolving line of credit, a bank can terminate their agreement should economic or business trends change. As such, and although you will be paying a higher amount of interest on the business loan, you may be able to benefit by receiving all of the debt capital that you need in one shot.

Due to the recent changes in legislation and the ways that banks conduct business, you can expect that a substantial amount of your business loan will not be disbursed directly to you. Instead, you will most likely need to submit invoices from vendors that you are purchasing goods from in order to launch your business venture. This loan covenant typically applies to purchases that are in excess of $10,000 in value. The primary reason why banks and financial institutions have instituted these new rules is so that they can place a direct lien on any major piece of equipment or property that are you seeking to purchase. As such, this provides lending companies with a much greater ability to recoup assets should your business not go as planned.

When you are applying for a business loan, it is imperative that you have a top notch credit score coupled with assets that you can use as collateral for this debt. Generally, with the assets that you intend to purchase, you can hypothecate up to 80% of the planned purchases as collateral. As such, you and your accountant should produce a substantial description of the exact assets that will be purchased with the financing that you are seeking. In order to further your goal of receiving funding, you may want to include direct invoices from vendors that you will work with as you progress through your business operations.

In conclusion, a business loan is superb for large scale purchases. If you have ongoing capital needs then you may want to look into revolving credit programs that are issued by your local bank. Additionally, in order to keep interest rates low, you should work with your regional Small Business Administration office to see whether or not you can receive a federal government guarantee for your credit request.