In order to develop successfully, a business must be able to obtain the necessary capital at any time. One way to make this happen is by taking out a business loan. Building and managing your own business is a time-consuming task that requires a lot of effort, regardless of the size and scope of your company.
No matter how well you’ve planned your business expenses, a little extra funding can be the key to the growth you want or the support you need at critical times. The business credit is a product created exactly for this purpose. It provides an opportunity for the enterprise to use additional capital when it is needed. We will look at the most important features and benefits of this kind of loan.
Business Loan – What It Is
A business loan is a credit granted to legal entities for the purposes of their business. Traditionally, banks offer this type of financing, but non-bank financial institutions are also entering this segment lately. If you have financial difficulties, a highly selected loan from a bank in Bulgaria at the right time can be a good option to secure more working capital and expand your activity.
There are various types of business credits at present but the most popular are revolving loans and investment loans. Revolving business loans aim to give access to additional working capital for the current needs of the business. As their benefits can normally be reported within a year, they are relatively short-term – up to 12 months or in some cases 18 months.
An investment business loan is granted for the expansion of the company’s activities, the purchase of machinery and equipment, the start of a new type of activity, repairs, etc. Since they are oriented towards the long-term development of the business, their terms often exceed 12 months.
Application Process and Approval
The application and approval process for business credit is very specific according to the company’s field of activity and the purpose of the loan. In most cases, the lender requires to get familiar with a set of accounting documents of the company. Also, there might be requirements for how long the firm has existed and has been operating.
Except for the credit history of the company, it is a common practice to examine the credit history of the borrower as well. In Bulgaria, there are many banks like DSK BANK that are willing to grant business loans with relatively favorable terms. When you visit their site, you will see two separate sections with products and services for small businesses and enterprise customers.
Business Credit Costs
Before choosing a specific offer for a business loan, it is good to know what interest rates and fees they generally include. Interest rates on business loans are usually floating. They are composed of 2 parts – a fixed allowance and a market index or Reference Interest Rate. When you get business credit, you might be charged some other fees for document review, credit management, etc.
Furthermore, you should always pay attention to the Annual Percentage of Expenses. This is an indicator that shows the general increase in the cost of credit. It includes both interest and all fees and commissions on the loan. APR is presented as a percentage of the loan amount. That is why it is one of the most important factors when choosing among many offers.
Guarantors and Collateral
If you need a smaller amount of money, you may look for unsecured business loan offers. There might be very few of them but you could still find something. But if you want to apply for more serious amounts, the lender usually requires some sort of collateral or guarantee. It can take many forms, but most often it can be real estate, machinery, and equipment, pledge of future receivables, or bank guarantees. The variety of loan guarantee options allows you to choose the one that best suits the specifics and conditions of your business.
