Lending to businesses or legal entities is cash loans that are issued to a legal entity for the development of entrepreneurial activity on the established terms and conditions for repayment and payment of interest on the loan.
Types of business loans. Fast business loans, working capital loan.
Business loans has its own classification and depends on several signs: term, method of lending and the purpose of the loan.
Credit classification for legal entities in terms of:
- short-term loan concluded for up to one year
- medium-term loan from one to two years
- long-term loan concluded for more than two years
1) One-time loan, consisting in a one-time transfer of the entire amount of the loan in full to the current account of the company. There is no limit for such a loan. Another definition of a one-time loan is a commitment, i.e. one-time loan for a fixed term with a fixed percentage.
2) Credit line. This is the provision to the legal entity of a certain way of the formalized obligation of the credit institution to repay loans for a specific time within a specified limit. Also, the credit line is a formalized obligation, which the bank performs for the term agreed upon in the documents and pays the loan to the borrower, not exceeding the established limit, on contractual conditions that differ from the one-time loan.
3) Overdraft. This is a loan issued for operating expenses. It is provided in case of absence or shortage of funds from a legal entity in current accounts. The final payment period should not exceed 6 months. And the period for which overdraft is provided, often does not exceed a month. Overdraft repayment occurs upon receipt of funds on the company's settlement account.
Depending on the purpose of the loan, it is classified into:
Credit for business expansion or for replenishment of working capital of the enterprise. It is considered the simplest form of financing. This is due to the fact that this loan does not require collateral, interest rates directly depend on the period and size of the loan, and the credit limit is determined using the company's current working capital.
Credit for the purchase of fixed assets. Such loans are not used for the purchase of fixed assets, transport units, special equipment and real estate. The loan is paid in equal shares, and the key is the products in circulation, equipment, transport, special equipment and real estate, including funds purchased with credit money. The main requirement for the borrower is the presence of business profits during the previous year.
Commercial mortgage. Used for the purchase of non-residential premises to be installed in a warehouse or office space. It is this property that is used as collateral, and interest rates are quite high, unlike those for housing mortgages.
Investment loan. Issued only for a specific investment project, for a period of 3 to 10 years. At the same time, the borrower is obliged to submit to the bank the business plan of his investment program and financial documents for the last years of activity. The pledge of the loan are the assets of the enterprise.