Business loan: How to choose the best in 2022
Today’s article is for you who need money to invest, expand or even pay your company’s bills. This is because we are going to deal here with business loans.
Business loans are a solution for those who need quick cash. However, as there are many variables that can make debt more expensive, attention is needed when choosing the best option. And that’s what we’re going to talk about next.
First, the most important
- The business loan is a way to get money to invest in your business.
- As it is a debt, you will need to bear interest and other fees charged by financial institutions.
- But with a good business plan and financial planning you will have many advantages with the business loan.
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Hiring Guide: All About Business Loans
The business loan is a way to borrow money and use it within your business. Today, there are several loan options that take into account the destination of the money and also the type of enterprise.
That’s why we created this Hiring Guide. Next, we will answer all your questions about how business loans work.
How does business lending work?
The corporate loan works in much the same way as a personal loan.
That is, you borrow money from a financial institution and, if the request is approved, you can use the amount to pay for any investment in your company, expand the business, buy machinery and even pay debts.
But of course, there is a cost to paying back the money the institution lent you. That is, you will pay for the business loan granted plus the interest that is added.
The big difference, however, is that when dealing with loans to companies there are specific lines of credit, which take into account the company’s operating segment and / or the purpose of using the borrowed amount.
And to get a business loan, the rules and requirements are even greater. this is because it is necessary to prove that the business has a future and that it will generate enough profit for the entrepreneur to be able to pay for the debt contracted with the loan.
What are the types of business loans?
There are several types of business loans, both those geared to the size of the company in question, as well as public and private loans.
But, in general, we can say that corporate loans differ mainly due to the destination of the money.
To give you an overview, here are the main features of some of the most common types of business loans:
For working capital
The business loan for working capital is one designed to maintain the daily operations of a company.
This modality serves to replenish stocks, buy goods and supplies, defray administrative expenses, among other company needs.
The main feature of this business loan is the fixed interest rate, in addition to short-term and no-grace financing. In addition, in general, the guarantee can be provided by a partner.
For fixed investment
Fixed investment is a type of business loan aimed at expanding the company, in addition to modernization through the replacement of machinery, furniture, equipment, utensils, facilities, etc.
For revenue anticipation
You can also use the amounts you have to receive from operations carried out by your business as a form of loan.
That is, you receive in advance what you would receive in the near future, but for this you pay a fee to the bank. In this case, there are three forms of loan for anticipating revenue:
- Promissory notes and trade bills : These securities are passed on to the bank, which provides the necessary amount in return;
- Check discount : The postdated checks that the company has are delivered to the bank and the amount received is used to cover the cash;
- Credit card bills: The bank receives amounts receivable from credit cards, and the bills serve as collateral for the loan.
For sale and purchase
In the type of business loan for sale, the company obtains a loan for buyers and receives the value of the cash sale.
In the purchase-type loan, the company buys what it needs from suppliers and the bank pays in cash, achieving a lower value. The company, in turn, pays the amount borrowed in installments.
When to take out the business loan?
Hiring a loan means that you are getting into debt. That is, you will have to pay for the amount borrowed plus the interest rate.
Therefore, you should only consider taking out a loan for your company if other alternatives, such as saving money and reducing costs, have already been considered.
Here are some of the situations in which business lending may be the best alternative:
- To distribute part of the profits to the shareholders of your company;
- For discharge of liabilities (accounts payable);
- For the purchase of goods and rights;
- To make new investments ;
- For bill payment .
What is the step by step to apply for a business loan?
Applying for a loan is never a simple process. The main bureaucracy is proving that you will have enough resources to pay the debt.
Therefore, when you apply for a company loan, the financial institution makes demands, asks for guarantees and demands extensive documentation.
Here are the main steps you should take to apply for credit for your business:
- Planning: Define the purpose of the loan and the exact amount that your company will need;
- Finances up to date: Even if the loan is for your company, the financial institution will analyze your CPF and your personal financial situation. You need to have a clean name;
- Business plan: It is with the business plan that you will try to convince the bank that your project is viable and you will be able to pay the installments of the business loan.
After that, gather all the documentation required by the financial institution and deliver it along with the business plan. That done, it’s time to wait for the analysis to be made by the bank.
Did you know that the biggest reason for companies to refuse credit is the lack of solid guarantees and / or guarantors?
How does the MEI business loan work?
Among the various types of business loans that you can hire is Microcredit.
Microcredit is a special loan line aimed specifically at the individual microentrepreneur (MEI).
The main difference is that this type of loan has cheaper rates and less red tape.
On the website of the National Bank for Economic and Social Development (BNDES) you have access to a list of agents operating resources for microentrepreneurs.
In addition, you can also apply for a loan for MEI at BNDES. But, in this case, as the BNDES has no branch, the operations are carried out through partnerships with financial institutions.
Anyway, companies can request loans from the bank as long as the annual turnover of the small company is between R $ 360 thousand and R $ 4.8 million.
In addition, the funds released through this alternative are destined for a specific purpose, therefore dealing with financing that can be related to construction, acquisition of machinery and equipment, production goods and inputs, vehicles, working capital, among others .
What are the pros and cons of the company loan?
If you get organized and plan, there are many advantages when dealing with a business loan. The fact is that a loan can, in many cases, be vital to your company’s survival.
With the business loan, you have quick access to money that can increase your profits, whether by buying more inventory, machinery or even improving the advertising of your business.
In addition, further planning is possible since you can pay for the business loan in monthly installments and, in general, for a long term.
However, if you don’t calculate the risks, your business loan can end up being a disaster in your company’s financial life.
That’s because, in addition to having to pay for the borrowed money, you need to pay for the interest rate and other charges that are added to the installments.
In addition, as it is a bureaucratic process, if you do not prove that you will be able to pay the debt or even if your business is profitable, it is quite possible that you will not be able to approve the business loan.
Here is a summary of the main advantages and disadvantages of business loans:
Where to get the business loan?
As we have seen, loans are, in general, granted by financial institutions that may be the traditional banks, in addition to fintechs and cooperatives.
When choosing the best business loan, the first factor that you must analyze is the reputation of the financial institution that will grant the loan.
It is essential that the institution is suitable.
It is essential that the institution is suitable and has tradition and reputation in the market.
But, in addition, it is important to know that, depending on the financial institution, items such as payment terms, credit limits and applied interest rates can vary widely.
These are important elements that have an impact on the final value of the business loan.
Hiring Criteria: How to Compare Business Loans
When choosing the best business loan, the ideal thing is for you to run simulations, which can be done online.
When simulating the business loan, you can then compare the main criteria that differentiate one business loan from another and choose the best one according to your expectations and needs.
To help you in this phase, we have listed below the most important factors that you must observe when choosing the best loan for your company.
- Restriction factors
- Amount and installments
- Interest rate
In the following we will explain each of these topics in detail so that you have no doubts when hiring the best business loan.
The first item that you should take into account when choosing the best business loan are the restraining factors imposed by financial institutions.
Banks are the ones that most often impose conditions to grant the loan. It is a way to increase the guarantee that you will be able to pay for the money that will be borrowed.
For example, it is very common for financial institutions to stipulate restrictions that refer to the type of collateral that you will give the bank to obtain the business loan.
The institution may request, for example, that you have assets, real estate, promissory notes or the endorsement of the partners as a guarantee for the payment of the business loan.
Some banks, on the other hand, restrict the loan to companies that have at least one year of activity with an active CNPJ and a corporate bank account.
The most bureaucratic still ask that the company have a minimum monthly invoice for the loan to be granted.
Amount and installments
Next, it is important that you carefully assess the amount that the financial institution makes available for the business loan.
Some financial institutions stipulate a limit on the amount to be borrowed. In general, this value varies between R $ 5,000 and R $ 150,000, but this can change depending on the bank.
In addition, it is essential that you carefully analyze the number of installments and the amount to be paid for the business loan.
You will find financial institutions that allow the debt to be paid in up to 24 installments.
As with any type of loan, the main factor that you should consider is the interest rate.
It is the interest rate that will affect your installments that you will pay to the bank and that will increase the amount of your debt.
In this regard, it is clear that the lower the interest, the more profitable the loan for the company will be.
But in addition to the interest rate, the bank will also charge you for other costs that it will have to carry out the operation.
Among the main costs charged by the bankers when granting the business loan are: Taxes, fees, insurance, contract registration costs, administrative expenses, among others.
All of these costs are grouped into the Total Effective Cost (CET), a document that the bank is required to show you in detail before you sign the contract.
Therefore, read all clauses carefully and make sure that you agree with all imposed conditions.
The business loan is an alternative for those who need quick cash, either to invest in the business, to buy goods or even pay bills. The big advantage is that, with it, you can pay in monthly installments.
However, to get the company loan you need to prove that you will be able to afford the debt, which is increased by interest and other fees. Therefore, it is essential that there is planning and that you take into account the costs and fees charged.
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