A business loan is a great way to get the funds you need to grow your business. It can help you cover your expenses, buy equipment, launch a new product or a new service. With the help of a business loan, you can take your business to the next level faster than expected! But since there are many types of loans to businesses and lenders, it can be difficult to know where to start. In this article, we'll cover everything you need to know about getting a business loan. We will also see the elements to consider before making your request.
What is a business loan?
A business loan is a type of loan you can use to fund your business expenses, such as new equipment, inventory, or working capital. A business credit will usually be issued to you by a bank or financial institution. It may or may not be guaranteed depending on your business situation.
THE secured business loans are collateral-backed loans. It can be a property or another asset that you could claim. This means that if you don't repay the loan, the lender can seize the collateral. Unsecured business loans, on the other hand, are not backed by collateral. So the lender takes on a bigger risk by lending you funds.
The benefits of a business loan
A business loan offers a variety of benefits, including:
- Quick access to capital: Business loans can provide you with the funds you need to start or develop your activities. It can help you cover expenses, buy equipment, and launch new products and services.
- Flexible repayment terms: A business loan often comes with flexible repayment terms, allowing you to customize the repayment schedule to suit your business needs.
- Improved cash flow: By taking out a business loan, you can improve your cash flow, allowing you to make larger investments and keep your business running smoothly.
- Tax deductions: Depending on the type of loan you take out, you can deduct the interest payment with your charges.
The two main types of business loan
When it comes to business lending, there are two main different solutions. The first is what is called “equipment credit”. Also named: SME credit or business credit. The second solution is “operating credit” or “line of credit”. Here are the main differences between these two types of business loan.
Operating credit:
Operating credit is a loan granted to a company to cover its current expenses and working capital needs. It is usually a line of credit that allows the company to have cash. It can thus pay its suppliers, face unforeseen expenses or invest in short term projects. The operating loan is generally reimbursed from the cash flows generated by the company's current activities. The conditions for obtaining and the interest rates depend on the financial situation and the solvency of the company.
In this example of operating credit, we distinguish the flow of liquidities on the current account of a company. This over a period of 10 months. In yellow, is the credit limit set by the bank. In red the period during which the company uses the line of credit (negative).
A business loan in the form of operating credit generally does not require amortization. That is to say that the company has no obligation to repay its debt. However, the interest rate as well as the fees are often relatively high.
Equipment credit or commercial credit:
Equipment credit or trade credit is a type of loan intended to finance the purchase of equipment, materials or durable goods for a company. It can be granted in the form of an installment loan or a financial lease. The equipment loan is generally repaid over a period of 12 to 120 months. The conditions for obtaining depend on the amount of the loan requested, the type of equipment purchased and the solvency of the company. Financial institutions and banks are the main providers of equipment credit. However, in Switzerland the cantons can also set up funding programs for the benefit of companies and start-ups.
In this example of an equipment loan, we see that the company has borrowed an amount of 100,000.-. She repays it at regular intervals over a period of 3 years. In this form of business loan, the monthly payment is fixed throughout the repayment. This although the amortization part of the credit is increasing while the interest payment is decreasing.
In addition to a generally favorable interest rate, equipment credit offers great freedom of use. A company could for example combine several projects in a single financing or also consolidate other pre-existing debts.
How to get credit for your business?
As soon as you have decided to obtain your business loan, the first step will be to apply for your credit. Given that there are a multitude of lenders, it is therefore essential to use the services of an independent intermediary such as Lica.
Once you have completed your application. A business credit advisor from Lica will contact you to fully understand your needs and objectives. Next, you'll usually need to provide some basic information about your business, such as name, address, and contact information. You will also need to provide various documents. These will be financial statements or other supporting documents to prove the solvency of your business.
Once we've reviewed your application, we'll quickly let you know if your business loan is approved or not. If so, then you can quickly access funds which you need.
What documents are required for a business loan?
When you apply for credit, you need to provide some basic information, such as your business name, address, and contact information. You must also provide certain documents so that the lending institution can determine your ability to repay the loan.
The specific documents you will need will vary depending on the type of loan you will ask and from the lender. However, the most common documents you will need to provide will be:
- Financial statement for the last 2 years
- Bank statement for the last 6 months
- Copy of the last taxation of the company
- Certificate from the prosecution office of the company
Depending on the company's situation and its experience with financing, the lending institution may sometimes request additional guarantees. It could, for example, be an additional guarantee or a personal guarantee from the director(s) of the company who wish to benefit from the business loan. In this case, other documents may be requested before close the loan.
Common business loan questions:
When it comes to business loans, there are a few common questions that many people ask before applying. Here are some of the most common questions:
- How long does it take to get a business loan? The time to obtain a business loan varies depending on the type of loan you take out and the lender. However, most lenders can provide you with funds within days.
- How much can I borrow? The amount you can borrow will depend on the situation of your business and your project. At Lica, we grant loans from CHF 50,000.- and up to CHF 10,000,000.-.
- What documents do I need to apply for a business loan? The documents you will need will be requested by your Lica advisor. You will receive a list of parts to provide as soon as your request is made.
- What is the interest rate for a business loan? The interest rate for a business loan varies depending on your business situation. But also the conditions that we manage to obtain for you. As'neutral and independent intermediary, Lica negotiates for you the best possible conditions with the main lending institutions in Switzerland. In general, the rate of a business loan varies between 2% and 12%.
Our conclusion on the business loan
A business loan is a great way to get the funds you need to start or grow your business. It can provide you with the capital you need to cover expenses, buy equipment and launch new products and services. With the help of a business loan, you can take your business to the next level!
If you are looking for a business loan, apply for financing today! The financing solutions offered by Lica are non-binding and are the most advantageous on the market in Switzerland.
By requesting the services of Lica, you guarantee yourself significant savings by obtaining the best conditions on the market. Your business credit specialist is there to guide you and help you make the right decisions. By relying on the services from an independent intermediary like Lica, you will therefore have the certainty of being perfectly advised. You will thus benefit from the best business credit solution in Switzerland.
Do you have questions before applying for an SME loan? Our advisors are there to answer your questions 7 days a week directly on WhatsApp. Ask us for more information and we will be happy to answer you!
