What is a Business Loan ?
A business loan is a debt-based financing agreement between a business and a financial institution such as a bank. It is generally used to finance major capital expenditures and/or to cover operational costs that the company could not otherwise afford. High up-front costs and regulatory hurdles often prevent small businesses from having direct access to bond and equity markets to obtain financing. This means that, like individual consumers, small businesses must resort to other loan products, such as lines of credit, unsecured loans or term loans.
A business loan is granted between a bank and a company and is used to finance operating costs and capital expenditure.
Many business loans require collateral, such as property or equipment.
Businesses are generally required to provide financial statements to prove their ability to repay.
Although most business loans are short-term, they can be “rolled over” or renewed to extend the term of the loan.
Commercial loans are granted to various business entities, usually to meet the needs of short-term financing of operational costs or for the purchase of equipment to facilitate the operating process. In some cases, the loan may be granted to help the business meet more basic operational needs, such as financing salaries or purchasing supplies used in the production and manufacturing process.
These loans often require a business to post collateral, usually in the form of fixed assets that the bank can confiscate from the borrower in the event of default or bankruptcy. Sometimes the cash flows generated by future receivables are used as collateral for a loan. Mortgages issued on commercial real estate are a form of commercial lending.
Commercial loans are most often used for short-term financing needs.
Creation or takeover of a business
How to obtain a loan to finance your project ?
Constitution of the presentation file of your project
In order to complete your bank loan request, you must be able to present your business creation or takeover project to banks.
Steps to follow for the study of your file
Preparing your company’s business plan including:
- A market study
- A forecast including the description of your project
- Valid IDs
- Legal documents
Must be presented to banking institutions. The file must be compiled by a qualified accountant, and its establishment must also be mentioned in the constitution of the file and must bear the seal of its company.
Its goal ? - Convince the banks to support you financially! Summary of your entrepreneurial project, your business plan is intended to describe both the strategy you intend to deploy and the expected return on investment.
Develop a financing plan
Before applying for a loan from a bank, it is essential that your business creation or takeover project is sufficiently advanced to be able to present a financing plan. Integrated into your business plan, the financing plan can be decisive for the acceptance of your loan request since its objective is to demonstrate the financial reliability of your project. To this end, it shows the needs necessary to start your activity, compared to the resources you have.
The needs include:
- Establishment costs (costs related to creation formalities such as court costs or the fees of a lawyer drafting the articles of association)
- Intangible assets (intangible assets that serve the business in the long term, such as advertising or software costs)
- Intangible assets (material assets such as furniture or vehicles)
- Financial fixed assets (sums of money to cover the first rent and the security deposit for example)
- Start-up cash (sufficient cash to pay for VAT financing in particular)
- The need for working capital (amount of money necessary to ensure the operating cycle of the company, in particular when the collection of the customers occurs after the payment of the suppliers).
Resources include:
- Equity (your contribution and/or that of your associates)
- Borrowed capital (money borrowed by the business).
Elements for obtaining your Loan
Although each financial institution has its own criteria for granting or not granting a loan to a start-up company, they all share expectations to which you must be vigilant when setting up your project
The financial reliability of the project
Our advisors are instructed not to question work that has been professionally edited, including for discriminatory or other personal reasons. That is to say, they first take into consideration the work that was done by a qualified financial consultant. If the constitution of the file seems viable to them, and realistic enough for the bank approached to be convinced by the business plan presented, the loan will work in your favor. However, underestimating the amount of the loan may work against you if the bank considers that the amount requested will not be able to ensure the start of your activity.
A balance between equity and debt
If a business is approved for a business loan, it can expect to pay an interest rate that is the prime rate at the time the loan is issued. KGK BANK generally requires monthly financial statements from the business throughout the life of the loan and requires the business to purchase insurance on larger items purchased with the loan funds.
Although a business loan is most often seen as a short-term source of funds for a business, KGK offers revolving loans that can be extended indefinitely or variable depending on how your quarterly capital grows. This allows the company to obtain the funds it needs to continue its activities and to repay the first loan in a timely manner, but also to think of other projects in order to submit them to the Bank.
The goal is that you are not bad debtors, if your project lacks viability, our advisers will lead you towards more viable projects by working with your on the reconstitution of your file so that it is accepted by the most large financial institution.
Contact us
Appointments are made by e-mail via your customer area, or in one of our offices with our advisers.