Investing Glossary

Business Loan

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Business loans are lending agreements made between business owners and banks or private lenders. Businesses need capital, either to fund operations or simply to start themselves up and begin turning a profit. Banks and lenders are willing to give them the money in advance, so long as they pay it back on an agreed-upon schedule, with interest. Business loans typically allow repayment over a longer period of time, while personal loans are more short term. Business loans offer more capital with a lower interest rate, while personal loans offer a smaller amount of money with a higher rate of interest. Business loans are useful for paying off business expenses such as supplies and materials. Depending on your state laws, qualifying business expenses can be tax-exempt or tax-deductible. There are a few different types of business loans though. Term loans are the most common type of loan. They are what is typically thought of as a loan. The word “term” refers to the length of time between when the loan is issued and when it is paid off. In a world of global corporations, small businesses have it rough. It can be hard to start a company from scratch, even if it’s a small one. The government’s way of solving this issue is to subsidize small businesses in the form of an SBA loan. The SBA, or Small Business Administration, does not issue loans to small businesses, but through this type of loan, it guarantees to pay back a portion of a bank loan taken out by small business owners. Asset based are secured, meaning the borrower has promised to put down an asset as collateral. Whether it’s stock, equipment, or other property, the asset acts as reassurance for the lender. The lender will get to claim the asset in the event that the borrower does not pay back the loan and interest. Many times lenders will even overlook poor company credit if there is a guarantee that an asset will be used to secure a loan. This practice is called asset-based financing.

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