What is a business loan and who can it be granted? Among the many types of loans available on the banking services market, the business loan is distinguished by the need to establish a pledge in the form of movable property. The subject of the pledge may be eg securities. What else do you need to know about the business loan? We invite you to read!
What is a business loan?
business loan is a specific loan product. Why? Unlike the most popular cash loan, it is granted against movable property, mainly:
- precious metals, eg gold,
- property rights.
The amount of the business loan reaches a maximum of 80 percent of the value of the pledge. If the borrower defaults, the lender has the right to take over the pledge. There are two types of business credit:
- business loan for natural and legal persons,
- business loan for commercial banks.
Before we characterize individual types of business loans, we will summarize all the features of a mortgage loan.
Features of the business loan
- is granted to commercial banks as well as natural and legal persons,
- imposes the need to establish a pledge,
- from 20 to 80 percent value of pledge,
- if the loan is not repaid, the lender acquires the opportunity to sell the pledge in order to recover the borrowed money,
- involves collecting interest in advance. Interest is deducted from the loan amount paid out,
- is paid in tranches or once,
- can be paid on the day of considering the loan application,
- is of short-term nature. It is often given for only a few months and even a few weeks,
- has a high interest rate,
- imposes the borrower’s cost of covering the pledge valuation. The valuation is carried out by a specialist appointed by the bank.
Conditions for obtaining a business loan
What conditions must be met to receive a business loan? A borrower who wants to receive a mortgage must:
- submit a business loan application,
- have creditworthiness, ie the ability to repay the loan and accrued interest,
- set up the required security,
- sign a loan agreement.
Business loan for natural and legal persons
Cash loan is not the only type of loan granted to individual clients and companies. Both natural persons and entrepreneurs can use the business loan by establishing collateral in the form of movable property. We already know that the borrower must cover the cost of the valuation of the movable property, which he gives to the bank against the collateral. The valuation is made by a specialist indicated by the bank and the final loan amount depends mainly on him.
If the pledge is securities or small items, eg jewelry, the pledge is transferred to a bank deposit. The bank will take care of it until the loan is fully repaid. At a time when the pledge are larger items, eg company equipment that cannot be deposited, the bank requests a security in the form of a warrant.
An alternative to a business loan is an online loan. You can apply from the first day of business! A business loan is characterized by easy application and quick money transfer. Like an online loan for individual clients, it guarantees high amounts and favorable repayment terms. It is worth using non-bank loans if you need immediate budget support!
Central bank business loan for commercial banks
Banks also use a business loan. In this situation, the central bank, or “bank of banks”, is a lender and, by pursuing its refinancing policy, grants commercial banks a loan. Until 1995, he offered a refinancing loan. After 1995, the refinancing loan was replaced by a business loan and a rediscount loan.
Business credit for commercial banks is granted only against securities. The loan value may not be higher than 80 percent. their nominal value. The bank grants a business loan based on the interest rate, which is set on the basis of the business rate. The amount of the business rate is set by the Monetary Policy Council, one of the bodies of the National Bank.