Small businesses can not self-finance at the desired level over time, so they often turn to the solution offered by bank loans. Loans can also come from other sources, especially since today all creditors can be found here . Loans can be made using accounts receivable or inventory as collateral. Although these credits can be considered costly for a company and increase their risk of being repaid in time or according to the established return plan, a legal person credit is, in most cases, a beneficial solution for a company that wants to grow.
For what purposes do companies use their credits?
Financial institutions are increasingly open to lending to legal entities without guarantees, especially for companies that are stable and have a very high turnover. In addition, if a company has proven its financial standing and has a positive credit history, the chances that it will get a higher amount of money on the next loan are very high. In general, in addition to traditional loans, firms are turning to credit lines to provide them with the cash flow needed to pay salaries, pay suppliers and many other financial operations where cash is needed. Also, a company can apply for loans to:
- Acquisition of real estate and expansion of operations – banks are willing to lend money to existing companies wishing to acquire real estate to expand their business by offering them the option of a mortgage-based legal person. If a firm expands, then the bank knows the company is successful and wants it to continue doing what it does. Enlargement generally takes place only if the company is making profits and has a positive cash flow, and the forecast for the future is positive (there are solid contracts in progress, agreements of principle for future contracts, etc.) . This is a scenario that causes any bank to approve a loan to a legal person. This type of legal borrowing is usually in the form of a long-term mortgage (25-30 years), and the property purchased is used as collateral. The company can use it as an office, production facility, showroom or any other destination that helps increase its image and financial capital.
- Purchase of equipment and a fleet of cars – firms have a few options in terms of purchasing equipment or expanding the fleet. They can either buy them or rent them; In this sense, there is the possibility of accessing a legal person car loan (either for the definitive purchase of cars or for car leasing). There are good reasons for them to opt for a loan for the purchase of the equipment. The state offers the possibility to deduct these expenses from the equipment, which means that the company can use it for its entire duration and then sell it to recover part of the investment. In order to find out whether it is better to buy or rent equipment / car fleet, a cost-benefit analysis should be done before making the decision. When a bank offers a company a loan for this type of acquisition, it is usually a medium-term loan. Medium-term loans are generally loans for a period of 10-15 years.
- Purchase of various inventory goods – banks sometimes grant small businesses loans to legal entities to buy inventory goods. Some small businesses have a seasonal character, which means that if a business gets the bulk of sales during the summer or summer season, it wants to buy most of the inventory before that time. Thus, these firms may be in a situation of needing a loan before the start of the respective season to buy a large amount of inventory goods to prepare for that time. Such loans are generally short-term, and companies redeem them after seasonal sales with seasonal sales. Even if these corporate borrowing interest rates are slightly higher than in the case of loans to individuals, the fact that a firm has greater financial power gives them the opportunity to get these loans much faster.
- Increased working capital – working capital is the money used to manage day-to-day operations. Small businesses sometimes need loans to meet their daily business needs until their assets are sufficient to cover their capital needs. Banks sometimes borrow money in the short term to allow them to overcome certain moments of financial failure and to increase. As the business grows and their own assets enable them to earn money, they can repay the bank’s working capital loan. Working capital loans may have higher interest rates than, for example, a real estate credit, because banks consider them more risky.
Choosing the moment when accessing a corporate legal loan is right for the company is complicated and requires a thorough understanding of the type of loan you are interested in, the current financial position and what you hope to do with the money you get. If you use the loan as a cutting-edge effort to save the company or respond to a momentum (purchasing a certain type of car for employees, for example), you should probably rethink this approach.
Determine with great care when you request a loan because it will require the submission of a company’s financial documentation, forecasts for the future, and you will need to be able to support the reimbursement schedule throughout your business. You get the money now, it’s true, but you’ll have to return it, which means that your business must be productive to allow you to pay your credit, cover the company’s current expenses, but also you make a profit. You can always rely on these legal loans, but you always have to do it at the right time and only for specific purposes to help develop your business!