Author: John Williams
Ever heard the saying, "It takes Money to make Money"? The
principle of borrowing money from banks and other credit
agencies to make money has been a relatively basic assumption
since early trade days. Existing business owners may want to
expand their business, buy more inventory, or even hire more
employees. New business owners need start-up capital to get all
the balls rolling. Many times businesses take out loans, just
because they can. It helps build good credit standing. When
discussing the purposes of a business loan, one must look at the
various types of loans available. Many times, the reasons your
business may need a loan don't fall under reasons the bank feels
you need a loan. Here are a few examples of types of loans
available and the functions these loans are used for:
* Short-term loans are usually used for short-term working
capital for a business temporarily in need of cash. These loans
may be based upon seasonal fluctuations, and other short-term
problems that a business may encounter. Usually, these loans are
paid within 1 year.
* Intermediate loans are often used for businesses that are
starting up. These loans may be used to build inventory, buy
equipment, or increase working capital. Working capital is money
needed for business purposes such as paying employees,
maintaining good over-head, and other business needs.
* Long-term loans can be given to business owners that are well
established and wish to increase their fixed assets, for related
business acquisitions, and for expansion. Long-term loans may be
given to start-up businesses, as well. Usually for purchases of
land or buildings, construction efforts, and long-term working
capital, these loans have terms that run 3-5 years.
* Government small business loans are available through
financial institutions, as well. The government guarantees these
loans if certain criteria are met regarding the business and the
business owner. These types of loans can be used for various
reasons: the purchase of land or buildings, new construction or
expansion, to acquire equipment, machinery, furniture, fixtures,
supplies and materials, and to refinance existing business debts
that have higher rates and unreasonable terms. These loans can
be used for both short term and long term working capital as
well.
Most commercial banks, credit unions, and even investors expect
business owners to have a well-thought out plan regarding their
business. These business plans should incorporate the usage of
loans in a very decisive manner.
Tags:
|
Print this page
