Types of Loans
There are various types of credit available from formal lending institutions.
1. Short-term loans - These are loans payable in one year or less. They are normally self-liquidating, meaning that they are used to buy raw materials and supplies, labor and other requirements that will generate funds for the business and in turn be used for paying back the loan. Collateral is usually required. However, a bank may extend a collateral-free loan, otherwise known as a clean loan to a client with an excellent credit track record.
Short-term loans may come in the form of a revolving credit line – an agreement by the bank to extend a loan, not to exceed a specific amount, whenever needed by the borrower. A credit line is automatically renewable, as each loan transaction is paid by the borrower. Commercial banks are the most commonly-used sources of short-term loans.
2. Intermediate loans – Otherwise known as term loans, these are loans that provide capital repayable in one to three years. These are available from banks and other financing institutions. For a start-up entrepreneur, term loans may be very useful. It is backed up by collateral securities and paid back in installments.
3. Long-term loans – These are extended only if the lending institution is assured that the borrowing enterprises would still be in business – and making a profit – over the long-term period of the loan which is up to ten years. Thus, to qualify, your business must be seen to be stable and sustainable. These are usually extended by private and government banks.
Types of Loans
1. Short-term loans - These are loans payable in one year or less. They are normally self-liquidating, meaning that they are used to buy raw materials and supplies, labor and other requirements that will generate funds for the business and in turn be used for paying back the loan. Collateral is usually required. However, a bank may extend a collateral-free loan, otherwise known as a clean loan to a client with an excellent credit track record.
Short-term loans may come in the form of a revolving credit line – an agreement by the bank to extend a loan, not to exceed a specific amount, whenever needed by the borrower. A credit line is automatically renewable, as each loan transaction is paid by the borrower. Commercial banks are the most commonly-used sources of short-term loans.
2. Intermediate loans – Otherwise known as term loans, these are loans that provide capital repayable in one to three years. These are available from banks and other financing institutions. For a start-up entrepreneur, term loans may be very useful. It is backed up by collateral securities and paid back in installments.
3. Long-term loans – These are extended only if the lending institution is assured that the borrowing enterprises would still be in business – and making a profit – over the long-term period of the loan which is up to ten years. Thus, to qualify, your business must be seen to be stable and sustainable. These are usually extended by private and government banks.
Types of Loans
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