The Ins & Outs of Capital Loans

capital loans

Capital loans are the type of loans used by many companies’ to manage and increase the cash flow of their business. People or companies borrow money from banks to start a new business or to invest the borrowed money somewhere where new profit can be earned.

Some businesses also seek the loan to pay the salaries, rent, mortgage and many other expenses. The loan taken by the company can be secured or unsecured.

Types of Capital Loans

There are six types of loans:

  • Credit line:
    Sometimes the amount of loan that a company can borrow depends on its relationship with the borrower. The borrower has to pay the interest which is only applicable to the amount of money that has been overdrawn.
  • Short-term loans:
    It is a type of capital loan, in which the amount of interest, as well as the payment,is fixed.This loan’s repayment loan is also short comparatively. The borrower sometimes has to pay the loan back in 12 months. The short-term loan can also be granted to the borrower if he has a good relationship with the lender without any collateral
  • Equity funding through personal resources:
    This type of capital loan is taken from the personal resources such as investment of a friend or relative etc. The businesses with no credit history particularly those who are just starting up can get this type of capital loan.
  • Account receivable loans:
    There are some capital loans, which are granted by the lender after getting complete information about the account receivables of the borrowing company. Any company that does not have enough funds to fulfill a sales contract can apply for the account receivable loan. However, only those borrowers are expected to get the account receivable loans that have good credit history and reputation of paying the loan back in the specific amount of time.
  • Trade creditor:
    The loan provided by the supplier is known as trade creditor loan. The suppliers offer this loan because they want the borrower to place the order in bulk. The supplier gives this loan after getting the complete history of the borrower to know if the company worth the loan
  • Advances:
    The loan granted in the form of advance is the one which is based on the future credit card receipts. The businesses that accept the payment through the credit card can avail this type of credit loan.

When to Use the Capital Loans?

The capital loan is widely used these days because of having a lot of benefits. It provides endless opportunities to a business to grow.

  • The capital loan can be used while starting up the new business. This loan helps the businessman meet the cash shortage demands.
  • Capital loans can also be taken when you already have a business and want to expand it. In such a situation, many people in business prefer getting a loan from the lenders who are doing business with them.

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