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Are you
thinking about starting a business but have no money to do it with. Well,
you're not alone. This article will tell you the basics of borrowing money.
A loan is money that is borrowed, and has to be paid back along with
interest. If the money is borrowed from an institution such as a bank, this
is called a commercial loan. Money that is borrowed from a friend or a
relative is called a personal loan.
The borrower, or debtor, is the business or individual that takes out the
loan. The lender, or creditor, is the source from which the money was
borrowed. The term, or period, is the time that is specified during which
the borrower has to use the money borrowed before he has to repay the loan.
The maturity of a loan is when a loan term reaches its end. The Principal is
the amount that is borrowed from the lender.
When you or your business borrows money, the lender wants to know when they
will get their money back. Keep this in mind when you are looking for a
lending source.
If the business is not able to repay the loan, the lending source has a
right to legally come after assets to recoup it's money. The extent to which
you are personally liable depends on the business structure your business is
operating under.
If you are approved for a loan, that you will have to make scheduled
payments (typically on monthly basis) plus interest. A loan can sometimes be
set up as a balloon loan. A balloon loan will typically require smaller
initial payments and one lump sum of what was borrowed as the final payment
at the end of the term.
Borrowing from Institutions
Business loans generally fall into two main categories: short term and long
term loans. A short term loan is a loan that is to be payed back within one
year. Examples of short term loans include:
Working capital loans
Accounts receivable loans
Lines of credit
Long term loans are loans that are to be payed back typically from one to
seven years. Long term loans are typically used for:
an expansion of a business
the purchase of equipment
real estate
Most business loans that are used for starting a business are long term
loans.
When you approach an institution for a business loan, it will be looking at
you as the business owner as closely as it will be looking at the business
itself. One of the ways lending institutions make money is by lending money
and they want to be as sure as possible that they get back their money with
the interest owed.
The time between applying for a loan and learning that you have been
approved (or disapproved) can vary. If you are disapproved, you may be told
almost instantly. If you are approved, it may take a few days though it
usually takes longer. It may even take several months to learn whether you
or your business has being approved for the loan.
Borrowing from Family and Friends
If you don't want to, or can't get a commercial loan, you can consider
getting a private loan from family or friends. This is usually real
informal. However, you need to be careful because this can lead to ruined
relationships.
If you are getting a private loan, it is in the best interest of the lender
to have an agreement put in writing. The written agreement should state the
principal, the interest charged and the terms of repayment. This puts the
lender in better position either write off the loan on his or her tax return
or to legally come after you.
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About
the Author: article
source: A Guide to Starting a Business at
http://www.aguidetostartingabusiness.com |
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