Business loan faqs

There is some flexibility as far as the repayment structuring of a term loan is concerned. If there is no monthly cash flow then it can be so arranged that the repayment comes on a quarterly basis. This is done after looking at the various conditions of the business and the cash flow being generated. This ensures that there is no cause for worry for the entity.

Term loans are usually given for a longer time period, up to three years. This makes them a slightly long-term product which also comes with a specific repayment structure. The situation is different with an overdraft that is usually sanctioned for a period of one year and then rolled over, depending upon the circumstances. Also, it has no specific repayment structure.

The interest rate charged by a bank on a business loan will depend upon the position of a borrower and the kind of financial condition he/she is in. The best clients with the best credit ratings are usually given the offerings at below the prime lending rate which might not be possible for small borrowers or even first-time borrowers. However, the position can improve over a period of time and the cost can go down as the financial position of the business improves.

There will be some difference witnessed with respect to the security accepted by different banks and the manner in which they offer the overdraft facility. There might be some securities that are valid only with certain banks. At the same time, even the amount that is considered as a margin is likely to vary across banks.

There is usually no restriction on the repayment of the amount outstanding on the overdraft. In fact, borrowers can repay this whenever they have the facility and the ability to do so, and hence it would be in their interest to ensure that if they have the necessary funds then the outstanding is reduced.

An overdraft account has a specific limit. The interest is however charged only to the extent the overdraft limit is utilised and also for the period it is utilised. This is a big relief for the businessmen and entities because they will be paying only for the time and amount for which the usage is present.

The nature of an existing account is very important as the overdraft facility is offered on a current account. An entity can operate the account and even draw more than what the balance is, up to the limit that is fixed for the overdraft. This makes the usage of the existing account possible.

There is an overdraft facility available for businesses wherein various assets can be used to raise funds. These assets include deposits, debt mutual funds, and even cars and buildings. Lending institutions provide loans against these assets

Every year, there will be a review of the total facilities available under cash credit facility. This will require a borrower to submit documents that show the sales and other financial performance of the business. Depending upon the developments during the year there might be some additional requirements but several basic documents which reflect the position of the business will be the same.

In many cases, the other forms of finance that are available in normal circumstances are not present because the business has just been set up. In some situations, the other types of borrowing are costly and this might make a borrower opt for cash credit facilities.