The very first thing you need to grasp is why you want a loan. This may be obvious at first glance but on occasions can be tricky to understand. The bank will call this the borrowing cause. you could need to buy more inventory to support sales growth, or perhaps you want a new piece of hardware to be more efficient. Infrequently a seller or supplier will change their trade terms requiring you to pay cash on demand ( COD ). If you had a rough 2009 like most business owners, you may be hunting for cash to help with the losses you took last year. There are several reasons why you might need a loan and it’s vital to comprehend the precise borrowing cause.
The borrowing cause will help you determine whether you want the cash momentarily or forever. This is important because commercial loan officers will give you a different kind of loan depending on whether your needs are brief or permanent. Lenders who do not understand the difference in which loan best meets your wishes can actually hurt your business by giving you cash the wrong way ( a scary thought ).
Temporary loans are paid back by liquidating inventory, selling equipment and other non-current assets or by depreciation. A good guideline is to consider transient loans being less than 12 months. ( do not use transient loans to finance permanent needs . ) Permanent loans are paid back by profits turning to cash or by refinancing the debt.
after you and the lender understand why your business needs a loan and the explicit borrowing cause, it becomes clear how long you’ll need the loan and how you’ll pay it back. The bank will then provide you a credit line, term loan or permanent capital loan with conditions that match your enterprises needs .
Now you know extra info about why you want the loan than most entrepreneurs. Knowing these details will impress and help your lender. The bank will be more assured that you know your business due to the details. This could begin the relationship of trust.