by Costas Chryanthou

Created on: January 17, 2009   Last Updated: April 15, 2009

For entrepreneurs needing a business loan a number of steps needs to be made to finance the business idea in order to get it off the ground. The business person will need a business plan which covers aspects of the business plan. This needs to be shown to the bank manager who will review the request along with the funding requirement of the business person.

So many aspects of the loan have to be taken into account such as interest rates which should in theory be low relatively speaking for persons with a good personal credit history. Bank loans will inevitably require guarantees and security of the loan amounts. The interest paid on the business loan is tax deductible. The arrangement fees can vary from institution. Usually getting a business loan for a start up tends to be more formalised and more strictly governed compared to a personal loan.

Regarding getting a business loan the bank will require some or many assurances that the person taking out the loan has intentions and ways of paying off the capital and interest of the loan each month. The loan will have to be paid every month otherwise the firm faces being made bankrupt. In the event of bankruptcy the assets of the company have to be sold off through administrators or bailiffs to try and recover as much money as possible to repay the outstanding debts.

Businesses have to include the business plan as part of the business financing proposal. The details will have to include the name and the nature of the business field the company wishes to operate in. The company also has to estimate their profits and cash flows, as well as make budgets whether they be monthly and give a detailed breakdown indication of their break even analysis as well as the marketing and financial strategy of the business. The bank will either agree or decline depending on the banks own risk assessment. Nowadays good credit history will go along way to secure the business loan.

Regarding the interest rate paid by the business will depend on the banks lending criteria in that they might have fixed or variable rates available. The fixed rate means the interest will be the same throughout the term period, or during variable rate the interest paid will vary depending on the national governments base rates. During early years of the business start up the fixed rate might be better to begin with when the interest rates are relatively low, though the company also will have to pay a higher rate by having the rate fixed.

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