Loans Glossary

Loans Glossary

Every business has five major components necessary to operate. These are personnel, equipment, housing, products and services, and last but most vital, is capital. It takes capital to get the other four.

Terms of loans may vary from lender to lender, but there are two basic types of loans: short term and long term. Generally, a short-term loan has a maturity of up to one year. These include working capital loans, accounts receivable loans and lines of credit.

Long term loans have maturities greater than one year but usually less than seven years. Real estate and equipment loans may have longer maturities. Long term loans are used for major business expenses such as purchasing real estate and facilities, construction, durable equipment, furniture and fixtures, vehicles, etc.

Financial Information
Financial statements balance sheets and income statements for the past three years may be required. If you are starting out, provide a projected balance sheet and income statement. In addition to business information, personal financial statements on you and other principal owners of the business may also be required. Provide information regarding the collateral you would be willing to pledge as security for the loan.

Operating Line
Operating loans are also called working capital loans, line of credit or overdraft protection. They are loans that fluctuate with the day-to-day cash flow needs of a business.

Term Loan
A term loan is a loan that has monthly principal and interest payments. The outstanding principal amount decreases each month. Generally, term loans are established to assist in financing fixed assets. The amortization period should closely match the useful life of the asset.

This is a term loan secured by a building on a piece of land. The maximum amortization period varies greatly between Banks – from 10 to 30 years. Your business must still meet standard lending criteria such as debt serviceability. In general, a business mortgage is more complicated and more expensive than your personal mortgage. A full property appraisal, environmental audit, and legal fees may apply.

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