Business LoansFinancial Dictionary -> Loans -> Business Loans
Loans made to businesses function much the same way as personal loans do, with some exceptions. For example, depending on the nature of the business, the loan may be structured in such a way as to support the business when it is experiencing a slump. This is common in businesses that have a seasonal or cyclical model, such as in the tourism industry. This qualification also influences the type of loan that a business can qualify for. A seasonal business can take advantage of short-term financing, which ends in a shorter time period and therefore does not require additional interest.
It is important for businesses to assess whether they even need financing. Since loans, even business loans, are risky endeavours. The business must be sure it is capital it lack, and not simply cash management skills. Additional steps businesses can take is make sure their business plan is up to date because lenders will want to review it and establish where the loan fits into the plan.
Business loans come in several types and forms, from leasing equipment to lines of credit. Some lenders even let businesses have credit cards with revolving credit limits, which can be a great asset for managing cash flow. Since all businesses have a life cycle, or stages of production and distribution, where an individual enterprise is on that cycle will partially determine the kind of financing it gets.
For instance, seed money is used to finance start-ups. Start-up cash needs can vary considerably depending on the business in question. A restaurant needs property, employees and equipment and supplies. A small Internet-based graphics company may need only a computer and an Internet connection.
No matter where the business is in its life cycle and the particular needs it has, establishing a positive relationship with a lender is crucial to securing the financing it needs. This depends heavily on preparation and presentation, as well as demonstrating the ability to handle the cash responsibly. Institutions loans depend on selecting the right lender in addition to making a good impression.
Banks tend to be very conservative about business loans, both due to their natural fear of risk and the fact that most of them are heavily regulated. Whichever type of lender is chosen, it is important to explore all financial options so as to better manage the company's assets.