Whether you start a business or already have one, you may have locked horns with the lack of money. In such cases, business loans are close to hand. But make sure that you know what this term means and how to use it wisely. This Logaster article will answer the most common questions about business loans. Let’s start.
The business loan is an opportunity for profitable financing granted to businesses and professionals. It is, therefore, an instrument allowing professionals to create their business or develop it. It is also intended to cover expenses such as those related to the creation of the company, purchases of business, shares or production equipment.
The loan can cover different forms. But still, all of them are divided into 4 groups: long-term loans, short-term loans, lines of credit and alternative financing.
Let’s take a closer look at each of them.
Long term loans’ repayment period starts from one year. They are repaid in monthly installments. The advantage is that you can take a loan in bigger amounts and pay lower interest rate than in short-term loans. Also, since the payment is spread over a long space of time your monthly charge is smaller.
2. Short-term loan
This type is usually used for short term needs and could be taken up to 12 months. Plus, the credit amount is quite limited, starting from 100$ and up to 100 000$. This type of loans fits both businesses and individuals who have temporary financial issues.
3. Lines of credit
Lines of credit have almost the same principle of work as credit cards. This means that once you set a limit, for example, 50 000$, you can use them when you need and pay the interest rate only for the sum of money you had taken. Then you receive and return the funds of your own free choice if you do not exceed the credit limit.
4. Alternative Financing
There are quite a lot of non-bank variants to get financial backup. They include crowdfunding, leaseback, online loans, invoice financing, etc. However, the sums you can take are much smaller than could be in the bank. And the interest rates are much higher.
Four indicators form the basis for calculating your loan cost: the amount of your loan, the interest rate, its duration, the periodicity of the repayment of the principal and the payment of interest (most often it is monthly payments).
With this data, it is possible to establish the schedule of your repayments. This is called the amortization schedule of your loan. This document is obligatorily attached to the loan offer. It indicates the amount owed by the borrower at each maturity by detailing the distribution of the reimbursement between the capital, the interest, the borrower insurance contribution and the capital remaining due after each monthly payment.
Here are some online business loan calculators:
Note: The overall cost of your loan is equal to the difference between the total monthly payment and the amount of the loan.
Let’s review below the different criteria that can affect the overall cost of credit.
1.The interest rate
The higher the credit amount, the higher the interest rate affects the total cost of credit. This is logical since it is this rate that is multiplied by the amount remaining to be repaid.
2. The borrower insurance
We remind you that it is optional whether it is for a car loan, a work loan or any consumer credit.
Calculation method: Unlike interest, the monthly insurance premium is fixed. That is, it remains the same from the first to the last monthly repayment.
3. Application fee
Fees can be calculated in two different ways depending on the financial organizations.
They are sometimes proportional to the amount borrowed (For example, the loan of 150,000 dollars with a 1% fee, will generate costs of 1,500$).
They can also be fixed. Their amount is then the same regardless of the amount of the credit.
If you need to take a loan to finance the growth of your business, buy new equipment, or hire more employees, business loan calculator will help you determine the monthly repayments and credit charges for different types of loans.
Here are some more advantages of using business loan calculators.
1.Simplify the repayment
Do you have any problems while calculating interest rates and loan cost? The service has a simple structure. With its help, you can get your payments separated in months and the total interest charges in a matter of minutes. Completing the details of your auto loan takes less than a minute.
2. Real-time information
Interest rates point to change. That’s why the Consumer Financial Protection Bureau groups information on new interest rates from approved creditors across the country and makes this data available to everyone. This actual data helps business owners make the right business planning.
3. Mobile friendly
At least half of the people access to the Internet with mobile phones. With an online loan calculator, there is no need to use a computer when you need to compare different loan deals. If you find an offer that you like, just create a bookmark for the web page.
So, business loans are an important thing that couldn’t be neglected. Make sure that you know what type of loan you need. Think it all over and try to understand if you can afford it or not. To simplify your life you can use online loan calculators to see all the benefits and disadvantages of different bank offers.