Business Finance Loan

Financial decisions are important for business as finance is the back bone of any business. The business require funds to fuel in the production process, pay to the employees, pay to the suppliers and many such activities that require cash on daily basis. This short term capital which is required for the business to keep it running is called as working capital. Also the business require long term funds for future plans which it has for expansion or for investing in the purchase of new plant or equipment.

The options are available for the firm to raise capital from either equity or debt, or, a combination of both. Loan is the simplest form of debt which is most common form of raising the capital.

The entrepreneur can raise the loan depending upon his short term and long term requirement. Such loans can be short term, intermediate term and long term loans and depending on the nature of the loan, the payment may be on the quarterly, monthly or yearly basis.

The financial institutions lending such loans charge a fixed interest for the money borrowed which may differ from one financial company to another on the basis of their terms and conditions.

The short term loans are taken for short term financial needs of the company and are raised by the business generally for a year. The intermediate loans are for up to three years and the payment mode may be quarterly or monthly. The long term loans are raised for meeting the long term business objectives of the firm and are for more than three years that may go up to twenty years.

The financial institutions have their conditions for lending the sum. They generally define margins for the amount, that is, if any entrepreneur has to raise certain sum then the bank will lend 70-75% of that sum and the rest of the amount has to be managed by the firm.

The banks also ask for security or third party guarantee and fix the repayment of the cash as installment on the basis of the cash flow of the firm.

Before lending, the bank looks for the past records of the firm, its creditors and debtors, scrutinize the financial statements, the assets and liabilities of the firm, and also completely review the project for which the loans are taken, where in the cash generation capacity and profitability of the project is generally assessed.