Entrepreneurial Resources : Banks
Loans and Credit Lines from Banks
You’re starting a business but you need to use some entrepreneurial resources in terms of money. There are two places you can get financial assistance: business opportunity seekers who are willing to invest in your business or the bank.
If you are applying for a loan or line of credit form the bank, there are two things you will certainly need: a solid business plan and a good credit history.
The business plan contains information about your business and product or service. There are a number of elements included in this and all plans vary according to the type of business you are opening. Some things that can be included in the business plan are: the type of business, what the business does, where it is located, what you expect to accomplish, and if possible, any financial information.
Credit history also plays a significant role. The higher your credit rating, the more positive your impression will be on the bank.
How Loans Work
A loan is a type of debt. The borrower (i.e. you) receives X amount of money which is known as the principal. This is given to you by the lender (i.e. the bank) and you are obligated to pay back the amount at a later time. The money is usually paid back in installments.
Types of Loans
There are three types of loans available:
- Secured: this is when you promise an asset such as a car or even property as collateral for the loan.
- Unsecured: no promise of the borrower’s assets is put up against the loan
- Demand: this is a short term loan and does not have a set date to repay the loan. It has a varied interest rate and the lender can ask for the repayment at any time.
Line of Credit
A line of credit is an amount of money a bank (or other financial institution) will lend to a business without any additional approval. It is the bank who will determine the exact amount based on your credit and potential income.
Think of this as an account in which you can access the money whenever you choose or you can simply leave it there for when you need it. For example, if you’ve been given a line of credit of $10,000, you can take out $2000 in one month and then $3500 three months later. Any interest is only paid on the money that is taken out. The bank is one of a few entrepreneurial resources that you can use to start your business.
