The business loan is an advantageous financing possibility granted to businesses and professionals. It is intended to cover expenses such as those related to the creation of the company, the purchase of goodwill, the purchase of shares, or the purchase of production equipment. It is therefore an instrument enabling professionals to create or develop their activity.
Who is the business loan intended for?
By definition, the business loan is intended for professionals. Individuals are therefore excluded because of their quality. That supposes that the professional must justify his quality. For that, certain documents are necessary and to be presented to the financial organization concerned
As a general rule, business loans are intended for the liberal professions, craftsmen, and tradesmen, but also for farmers, associations, or Very Small Enterprises (VSEs). We note that the common point between these different professions is that they all have limited resources. These are professions where the need for financing can be important, and which employ a very large part of the active population. Hence a loan specifically designed for them.
What can be financed with a business loan?
The business loan, also known as a professional loan, allows, as its name suggests, to finance three main types of professional needs.
The first is equipment needs. These include equipment, machinery, or vehicles essential to the operation of the company. It can be the electrician’s van, the graphic designer’s computer, or the farmer’s tractor, …
The company loan then also covers real estate needs. These are the needs for business premises, which can be built from scratch or acquired within an existing building.
Finally, the professional can, with this loan, finance his cash flow needs. It is then a question of having a working capital to cope with late payments for example.
Forms of business loans
In concrete terms, the business loan can take different forms. It is not a single loan. Among these, we have the classic credit, with often advantageous conditions compared to individual loans. There is also factoring and leasing. We will come back to each of these types of professional loans
Credit is the most classic form of business loan. It is simply a loan repayable by the company according to monthly installments set in advance by the financial institution. Very often the credits addressed to the professionals are more advantageous and less constraining than those intended for the private individuals. Some variants exist, for example, the discount, the cash facility, or the overdraft.
For a company, it is a question of calling upon a factoring company (or factor) that acquires these accounts receivable and manages them in the place of the company. There are many advantages to this form of a loan.
First of all, it allows the company to gain immediate cash flow. Indeed, it sells its accounts receivable for a sum of money.
Yet in addition, it permits the organization to pick up adaptability. Factoring could be likened to a kind of subcontracting in the management of the company’s accounts receivable.
Leasing or leasing
Leasing is becoming more and more common for private individuals, especially when buying a car. However, it must be said that it is originally a measure designed to help finance companies.
Also known as leasing, leasing consists of a company approaching a leasing organization (a bank, for example) with the aim of having the latter acquire equipment and lease it to the company for a fixed period of time in exchange for a fee.
This is when the company cannot afford to buy the equipment. At the end of the term, the company is often allowed to purchase the equipment in question in exchange for payment of the residual value
The advantage is that during the period of “leasing” the equipment, the company does not own the equipment, so costs are reduced. However, the daily costs remain the responsibility of the user, and therefore of the company.