Loan, The Best Source Of Raising Funds

Are you finding the best source of increasing funds for business operations?

 

Have you been finding best source for increasing funds for business operations?  Then, loan is the best source of raising funds.
 
The loan is the amount of money which you lend from banks. It is the money or anything given to another person in exchange for future payment with the interest.
It is the way of growing over-all money supply in economic. It is the main type of debt financing for small corporations.
 
The borrower has to pay interest on the amount borrowed until it is not repaid. He has to repay the loan amount after a specified period of time.
There is a promissory note which acts as the evidence of debt. It includes the amount borrowed, the rate of interest and date of repayment. The interest is an incentive for the lender.
 

Types Of Loans

 
Loans has two main types: – long-term loans and short-term loans.
  1.  The short term loan has a shorter maturity period as compared to long term loans i.e. less than two years.
  2. Long term loans have a long maturity period i.e. more than two years.
 

Tips To Remember Before Taking Loan

 
  • Maturity period:  Maturity period of loan means the length of a loan.  Loans are categorize according to their maturity into short-term, long-term and intermediate-term debt.  Perpetual debt has no specified time of maturity. But it needs only regular payment of interest.
  • Repayment time:  Time of repayment of loan depends upon the type of loan.  Loans are repaid on an installment basis.  The bank prepares the repayment schedule of the loan.  It determines cash flow of the customer’s project.
  • Loan interest:  Bank never provides loan without interest. Interest rates may differ in the types of loans.  It has to be pay by the borrower every month.
  • Security:   Loans are provided against security.  The borrower has to keep some security with the bank to take a loan.  But usually small amounts of loan can be passed on the basis of personal guarantee.  Security is important for taking long-term loans. 
  • Mode of loan:  Usuallyloans are given in form of cash or cheque.  It is an exceptional case when it is given in the form of raw material,  machinery and other inputs etc. 
  • Parties:   Two parties are involved in the loan.  One is a bank and the other one is a borrower. The applicant will apply for loans to the bank and the bank will accept or reject the application. Bank can accept application only if found customer is able to repay debt. 
  • Amount of loan:  The loan amount depends upon the type of loan. The applied amount and sanctioned amount may be different.  It depends on the quality and capacity of the borrower and the purpose for which applied.
 

Bank Loan Benefits

 
  • When you take a bank loan then you only need to pay installments on time.  This is the main advantage of a bank loan.  You can invest it anywhere and keep the profits with you.  Bank don’t check where you invest it. 
  • Bank loans are avail at low-interest rates.  It will save you money.  When you use a bank loan for business operations then the interest you pay on the loan is tax-deductible. 
  • Bank loans are helpful for expanding the business.  Very few companies may have the cash flow for bearing huge expenses.  A bank loan will help you in the smooth flow of your business.
 

Different Types Of Bank Loans 

 
Nowadays, loans are used for every purpose whether you want to buy a car or buy a new home.  The loan is the best source of fundraising.  Let us talk about the different types of loan provided by banks :-
 
  • Personal loans: Many banks provide personal loans to their customers.  These loans are unsecured loans.  The applicant and bank requires some specific documents.  The documents includes proof of assets,  proof on income etc.
  • The applicant must have enough income to repay the loan.  The application is of 1 or 2 pages. The loan will be sanctioned within two days.  The period for this loan is not too long.  Personal loans are helpful when you want to take a small amount of loan and repay it as soon as possible.
  • Credit Card Loans: you must know that you will have to repay for all purchases at the end of the billing cycle.  It is the most convenient way to buy things which we want. Nowadays, it is accepted everywhere.  It becomes the most popular type of loan.
  • For availing a credit card, you need to do is fill out an application form provided by customers. You can also apply online. It is a plastic card with a microchip on it. You need to repay it on time in credit card loan.  There is a high amount of interest on the amount borrowed on credit card.
  • Home loans: if you want to buy a home then the home loan is the source of managing the funds. It gives you financial support. These loans are mainly for long period 20 to 30 years.  The credit score of the applicant will be checked before approval of the loan. 
  • If he has a good credit score then he can able to enjoy a low rate of interests with your Home Loan. They are mainly taken for buying a new home, renovating home, home extensions and buying land etc.
  • Car Loans: Car becomes the necessity of today’s life. Buying a car gives you a sense of happiness. It becomes your asset but it is the big investment which you make. Car loan helps you to buy your dream car. Your credit reports are necessary for determining your eligibility towards the loan.
  • If you get a good credit report then your loan will approve easily and you can enjoy a low rate of interest. They have secured loans. If you are unable to pay installments then the bank can take your car back and recover their debt.  
  • Education Loan:  Education loan is helpful in studying in a reputed university. These loans are taken by students who want to go abroad for studies. But they require financial support for taking admissions and bearing other expenses. For taking an education loan, you required to submit all documents. It involves an invitation letter from the University and educational qualification university.  
  • Two-wheeler loan:    Two-wheeler is necessary in the present world. It is easy to apply for. The borrowed amount in this loan will help you in buying a two-wheeler. When you do not your installments on time then the bank will take your two-wheeler to recover the debt.  
  • Loan against fixed deposit:    You can take this type of loan when you have fixed deposit in a bank. The interest rate is usually higher than the interest rate of the fixed deposit.   
These are the main types of loans which are provided by banks.

 

 

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