You have to invest in growth. Time and effort of course, but also money. Once you have a profitable idea, it’s time to decide how to arrange additional financing. If such an investment involves a large one-off purchase, a business loan is a good idea. In this article we explain in which situations a business loan is the right choice and what a business loan is.
When is a business loan useful?
A loan comes in handy to make a one-off investment in something that will last for a long time. You can think of the purchase of a machine, a completely new office layout, a website, or a major marketing campaign. You receive the full amount in one go on your checking account.
You repay part of the loan amount each month and pay interest. The part that you pay off is the same every month. You choose the term of your loan based on our advice (between 3 and 60 months). The shorter the duration, the more you have to pay off each month. (Curious how the interest rate is determined? You can read that here.)
We link the term of your loan to the purpose of your investment. If you invest in something that lasts for 3 years, it is wise to opt for a term of 3 years. This way you avoid having to repay money that is still stuck in the assets of your company.
What form does a business loan take?
When you take out a business loan with lender company, you opt for a linear loan. In the case of a linear loan you pay off evenly: the interest that you have to pay is calculated on the amount that you have not yet repaid. You therefore generally pay less and less in interest. In addition, you always pay off fine at lender company. So if you pay off your loan early, you don’t pay anything extra.
An example: you have a bakery that runs great. Time for a second location! You have to set up a completely new bakery as quickly as possible and therefore want to have a substantial amount at your disposal in one go. You opt for a business loan of USD 50,000 with a term of 5 years.
The first time you make a repayment, you pay interest on the full USD 50,000. But a year later only about USD 40,000. Your monthly payments are therefore lower than at the start of the repayment period. Your income increases thanks to your second branch, and you have repaid your loan after 5 years. Time for a third location!