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Business Loan

If your company does not have enough money for operating expenses or does not want to postpone the expansion of the business, you can take a business loan.

What is a business loan and what is needed for its approval?

Banks in Minnesota usually offer targeted business loans to entrepreneurs and companies. This means that the borrowed money must be spent on a specific task, for example, the purchase of transport or equipment, the construction of industrial or commercial premises, participation in tenders. The borrower confirms all expenses on the loan with documents: contracts, acts, invoices.

Banks also issue non-targeted loans. In this case, entrepreneurs have the right to spend borrowed money at their own discretion and not provide documents. But the rates for such loans are usually higher and the amounts are lower.

Banks and microfinance organizations can offer a loan to a legal entity and an individual entrepreneur. Money received under credit and loan agreements is not taxed.

What is a business loan used for?

A business loan in Minnesota can be used to:

How a business loan differs from a personal loan?

Business loans are offered only to enterprises, one of the key conditions will be that the borrower has an individual entrepreneur or legal entity. A personal loan is taken by individuals for personal purposes, for example, to buy something expensive. To get such a loan, you will typically need three documents: an application, a passport, and proof of income. To get a business loan, you need another package of documents.

Individual entrepreneurs can apply for both business and personal loans. In both cases, money can be spent on business development, but of you have personal needs – you should take a personal loan.

An entrepreneur is responsible for any loans with personal property. But there are restrictions: for example, you cannot confiscate an entrepreneur’s only home. If the conditions for issuing a loan are violated by a legal entity, then you will have to settle accounts with creditors with the property of the organization. However, the founder of the organization who took out a personal loan as an individual is liable for debts only with personal property.

Types of business loans in Minnesota

Let’s consider different types of business loans:

  1. One-time loan. The entire amount is credited to the borrower’s account. In addition to it, he or she returns a fixed interest to the bank;
  2. Credit line. Funds can be borrowed from the bank several times during a specified period and within a certain amount – the credit limit;
  3. Overdraft. It is a loan for operating expenses. The service allows the bank to write off more money from the account of an entrepreneur or organization;
  4. Leasing, or finance lease. An entrepreneur leases machinery, transport or equipment for a long time, regularly pays for what he or she uses, and then buys it out at the residual value;
  5. Factoring. It is used by companies that work with clients on a postpaid basis. The seller receives money from the bank for the goods delivered or the service provided even before the buyer pays. When the due date comes, the client settles with the bank;
  6. Business credit cards. It is used to pay for purchases and services. You can repay the loan by transferring from the current account, in cash at an ATM or bank cash desk.

There are different loan terms:

You can repay the debt to the bank, depending on the conditions of a particular loan, by annuity or differentiated method. In the first case, you pay a fixed amount monthly, and in the second, the payment amount gradually decreases. The terms of early repayment are described in the agreement with the bank. Before the deadline, you can pay off the entire loan in whole or gradually make amounts in excess of the monthly payment in order to reduce the overpayment of the loan.

Banks determine interest rates taking into account risks and their own margin. When the agreement is already in force, the lender does not have the right to unilaterally change the rates, but there are exceptions, for example, if such a condition is specified in the current agreement.

Sometimes the bank may require collateral (security), for example, real estate or transport. If the entrepreneur violates the terms of the loan repayment, the property will become the property of the bank.

Conclusion