Business Loan

Intermediate

A business loan is money borrowed by a company or business owner from a bank or other lender to fund business needs, such as starting up, buying equipment, managing cash flow or expanding.

Business loans come in many forms. Term loans provide a lump sum repaid over a fixed period. Lines of credit and overdrafts provide flexible borrowing for day-to-day needs. Equipment loans and asset finance are secured on the items purchased. Commercial mortgages fund business property. Some governments offer loan guarantee schemes to help small businesses borrow.

Lenders assess a business's ability to repay by looking at its revenue, profits, cash flow, credit history, existing debts and business plan. They may require collateral or a personal guarantee from the owner, which makes the owner personally responsible if the business cannot repay.

For example, a bakery might take a five-year business loan of 80,000 to buy new ovens, repaying it in monthly instalments from its sales.

Interest rates depend on the business's risk, the loan's size and term, and whether it is secured. Business borrowers usually receive fewer consumer protections than individuals, so the terms, fees and covenants should be reviewed carefully.

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