Loans in this part of the world, Nigeria to be precised is like burden to so many and so they run from it due to ignorance of purpose and full understanding of what it is.
I too was once in that darkness, until I realise that even the wealthy we are looking up to most of them live on loan not because of anything but because of information.
There are loans that requires no collateral, and little to no interest rate but many wouldn’t know. Below I have highlighted types of loans that can be beneficial to your business as an entrepreneur. Do read to the end..
What types of loans can your business Consider as an Entrepreneur?
Such professionals explain that you need to be aware of the type of loans you as an entrepreneur get. They point out that such lending schemes fall under the following seven general categories: mind you there are two types of loans but we would only be looking at one here… The two are Equity and Debt loan
Debt is a kind of loan the bank lends to individuals or business for the purpose of interest within a stipulated period of time while equity is sharing of a business ownership with investors or the borrower which allows them receive dividends and voting right.
Below are the type of loan you can get at your banks, some banks use different terminologies for their loan packages..
1. Line-of-credit
If you are a business owner with limited resources, this loan should be useful to you. Actually, experts feel you should request your banker to make this facility available to you.
This lending scheme allows you to withdraw as much money as you need to overcome financial difficulties. This could be in the form of cash crunches or any emergency expenses you need to meet.
Generally, entrepreneurs open a line of credit with their bankers to meet their working capital needs.The facility is ideal for purchasing necessary inventory, clearing their suppliers’ dues, and paying their employees.
However, they cannot use it for buying the necessary machinery, real estate, equipment and other similar assets. This duration of this lending facility is generally one year. Fortunately, proprietors can easily renew it by paying an annual fee.
2. Instalment Loans
In this type of loans, you need to repay the interest and principal in monthly instalments. Experts say you can use this form of debt financing to meet any type of business needs.
On finalizing the contract with your banker, you get the total amount of money you need. This financier will also calculate the interest payable and determine the date on which you have to clear this loan.
If you are able to do this, you do not incur any penalties or additional interest charges. Its duration depends upon what purpose you intend to use this money. Generally, it ranges from 1 to 7 years. However, if you are going to use such funds to purchase real estate, the facility can extend to 21 years.
3. Letter of Credit
If your organization conducts its business activities in the overseas, you need this lending facility. It allows you to make secure payments to your suppliers in different countries.
You also do not face any problems in receiving payments from your international debtors. To obtain a letter of credit from your banker, you need to submit certain important documents.
These include the bill of lading identifying the merchandise, your commercial invoice, and the insurance policy. In some case, you may have to give a copy of the title documents of the goods you are dealing in.
4. Balloon Loans
Prominent professionals from reliable companies say that most people don’t know of such loans. You can receive the money you need under this lending scheme after signing the agreement with your banker.
You are liable to pay the interest charges on this loan over its entire term. However, you need not pay the principal amount until the date of maturity. Even then your financier will insist you make a lump sum or ‘balloon’ payment for this liability.
This makes this lending scheme different from most conventional loans available to business owners. Some banks even allow entrepreneurs to pay a such an amount for the principal and interest on the final day.
You could compare it to a mortgage people take to buy a home. It is useful for proprietors who are waiting for their clients to make large payments on a certain date.
5. Interim Loans
Business owners use this lending facility to help them manage their business operations for a short period. After this period, such proprietors generally enter into a long-term financial arrangement with their bankers.
For instance, people operating a startup company may need money to conduct their activities for a few months. However, after launching the initial public offer (IPO), they start repaying this loan.
Again, an entrepreneur may take an interim loan from his/her banker to pay the contractors he/she engages for a project. However, as soon as he/she get a mortgage for the facility, the proprietor will begin repaying the interim loan.
Generally, banks have very stringent eligibility requirements for securing this form of debt finance. This is because the officials of such organizations need to certain of commitment of person repaying it. They will evaluate his/her ability to pay off such a loan before sanctioning it.
6. Unsecured Loans
Most business owners are familiar with these loans. Bankers generally sanction them to such proprietors when they are certain of the financial viability of their establishment in the market.
They also scrutinize the ability of these borrowers to repay the sums they lend to them. Generally, these entrepreneurs can use such money for any business purpose. Moreover, they do not have to pledge an asset to obtain such modes of finance at a high rate of interest.
7. Secured Loans
These are similar to unsecured loans. However, entrepreneurs availing them need to mortgage one of their assets. This is why this lending scheme has a low rate of interest. In the case of a default on the part of such borrowers, the bankers can forfeit this asset.
Entrepreneurs can avail any of the above 7 seven loans to finance their business. However, such modes of debt financing are not cheap. They need to know what their requirements are and how much money they need.
Only then can they select the right one. However, when they have any doubts, they should not hesitate the consult their bankers. Such professionals can assist them in taking the right course of action
8. Asset Capital Loan: Currently FCMB are running this type of loan for business who probably wants to get an equipment to help their business with just a commitment of small percentage of the actual cost of the equipment, it’s like a startup funding but a Loan.
9. BOI loan: this is called bank of Industry loan, it is done outside the bank, for big projects but needs BG – Bank Guarantee to be acquired. Incase of any misconduct banks would be held responsible for that.
10. Quick Loan FCMB – this type of loan at FCMB can only be acquired by the bank customers whose accounts has been functional for minimum of 90days. This doesn’t really requires collateral just a relationship with the bank. It’s interest is not distress as it is very convenient if payed within 3months – with interest as low as 5.%
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