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A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

Financing Loan

Financing Loan

When the need to borrow money arises, there are many sources to which you can turn to .Whether you're starting a business or expanding one, sufficient ready capital is essential. OR When ever due to some reason businesses fail inadequate or ill-timed, financing is a close second. Generally you must have a detailed business plan and year's forecast before financing loan. Ensure you avoid common mistakes like securing the wrong type of financing loan, miscalculating the amount required, or underestimating the cost of borrowing money.

There are many sources for financing loan: banks, savings and loans, commercial finance companies. State and local governments have developed many programs in recent years to encourage the growth of small businesses in recognition of their positive effects on the economy.

The most common source of professional equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government assisted sources, or major financial institutions.

Traditionally, banks have been the major source of financing loans. Their principal role has been as a short-term lender offering demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Even for other substantial purchases such as homes or automobiles, you will most likely turn to a bank to work out arrangements for a long term loan.

There are two types of financing loan: equity and debt financing.

When looking for money for a business purpose, you must consider your company's debt-to-equity ratio - the relation between dollars you've borrowed and dollars you've invested in your business. Lenders commonly require the borrower's personal guarantees in addition to equity considerations, in case of default. Thus more money you invest in your business, easier it is to attract financing loan.
If your firm has a high ratio of equity to debt, you should probably seek debt financing.
If your company has a high proportion of debt to equity, you should increase your ownership capital (equity investment) for additional funds.

When you are going for financing loan, you should be certain to understand the terms of the agreement, in terms of time period of a loan, its interest rate and the terms (if any) that apply if you are late in repaying the loan.


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