Loans And Amortization – Introduction To Loans
Businesses often need to borrow money to finance business investment activities. Here are some of the types of loans a business might take out. Basic Loans
A commercial loan is a debt-based funding arrangement that a business can set up with a financial institution. The proceeds of commercial loans may be used to fund large capital expenditures and/or operations that a business may otherwise be unable to afford. This type of loan is usually short-term in nature and is almost always backed with some sort of collateral. Commercial loans usually charge flexible rates of interest that are tied to the bank prime rate or else to the South African Reserve Bank (SARB) Many borrowers must file regular financial statements, usually at least annually. Lenders also usually require proper maintenance of the loan collateral property.
Due to expensive upfront costs and regulation-related hurdles, smaller businesses do not typically have direct access to the debt and equity markets for financing purposes. Therefore, they must rely on financial institutions to meet their financing needs.
A term loan is a loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate. Term loans almost always mature between one and 10 years. Businesses use term loans for month-to-month operations or to purchase fixed assets such as production equipment.