Corporate loan - what is it?
Loans for companies are contracts, always concluded in writing, between the bank and the credit recipient - in this case, a specific company. Each loan is characterized by the following features:
- promptness - the contract is concluded for a predetermined period of time;
- interest rate - i.e. the price of the loan consists of the bank's margin and the reference rate; the interest rate has an impact on the creditworthiness of the credit recipient - the rule is that the lower the interest rate, the higher the creditworthiness of a given entity should be;
- purposefulness - a specific purpose for which the entrepreneur takes a loan;
- paying back - The loan is paid back with interest within the timeline set by the agreement.
Unflagging growth in popularity
Running your own business, regardless of its size, involves a number of costs, practically at every stage of functioning on the market. In order to maintain accounting liquidity, many entities decide on investment loans for companies as well as other forms of credit.
Necessary condition - creditworthiness
Loans for companies are very popular. They are willingly taken by entrepreneurs, but not everyone can apply for them. A positive decision of the bank is, of course, a prerequisite for obtaining a loan. It must be preceded by an assessment of the creditworthiness of a particular company. For this purpose, the bank usually expects the potential credit recipient to provide documents confirming the ability to repay the loan with all additional costs (such as interest or commission).
Types of loans for companies
Both loans for small businesses, as well as loans for large corporations, due to their purposes, may occur in many variants. The following types of loans can be distinguished:
Bank overdrafts (so-called credit line)
They are classified as short-term loans; they are closely related to the bank account maintained by the company and constitute an attractive and convenient form of lending for the entrepreneur. The credit line means increased debit, so in reality, an entrepreneur may have more funds than those that he or she has in the account. The limit of collected funds is strictly specified in the contract. The interest is also favourably presented, as it is calculated not on the overall limit, but on genuine debt. Loans for companies on the current account are flexible and extremely helpful in the current financing of operations.
The main purpose of the entrepreneur to apply for such loan is to finance the investment or other developmental needs of the company. It is worth remembering that contracts for investment loans for companies strictly set the goal and are usually granted to entities that have an established position on the market. Due to the fact that they usually refer to large amounts of money and cover long loan periods, a specific market residency period may be required from entrepreneurs who apply for them.
Working capital loans
They are used to satisfy the company's current liabilities. In practice, this option is often used by entrepreneurs who want to maintain liquidity, while freezing their own financial funds (e. g. insolvent counterparties). Working capital loans can be revolving or non-revolving - it all depends on the loan agreement with the bank. In the case of a revolving loan, after the period for which the contract was concluded, the loan period may be extended without the need to repay the debt.
It is a kind of subsidy granted for specific technological innovations. This is a great option for companies wanting to keep up with rapidly changing development and modern technologies. Such loans for companies allow you to buy expensive, sophisticated equipment and invest in advanced technologies.
They are granted on the implementation of ventures for which entrepreneurs have been granted a subsidy. The purpose of bridging loans is to guarantee the accounting liquidity of the company during the waiting period for receiving the main funding.