Growth companies often face the problem of investing in growth but lacking funding. Without financial investment, a business cannot grow. It may not be possible to afford large investments even if the company is financially sound. However, costs continue to flow all the time, and the investment required for growth must be financed by other means.
Before applying for a business credit or business loan, it is important to calculate the return on your investment. In other words, ensure that the return on investment is higher than the interest cost of the limit or corporate loan.
The Company Limit and the Corporate Loan are both well-suited for financing the operations of a growth company. What are the advantages and differences of these forms of financing?
A business loan is a monthly installment loan granted to finance the operation of a business. A corporate loan operates on the same principle as a private loan – only for a different purpose. A business loan can be applied for by any company or company to be established, such as a limited liability company, a company name, a partnership or a limited partnership.
Banks and financial institutions provide corporate loans
Corporate loans are granted by banks and finance companies. Banks with large corporate loans are often able to offer loans at lower margins and at lower interest rates, but on the other hand, banks have stricter credit criteria. Collateral for a business loan from a bank is usually also required, which reduces the bank’s risks and affects the level of interest and costs. On the other hand, this can be a less flexible means of financing for entreprenUSDs and businesses.
A payment plan will be agreed upon when granting the corporate loan. Due to the collateral of a loan, a corporate loan is granted in larger amounts at one time than, for example, a business limit.
Banks provide corporate loans ranging from a few thousand to several millions of dollars. Corporate loans from financial companies are more moderate and range from USD 3,000 to 300,000. With crowdfunding, the amounts may be higher.
Corporate loan rates vary
The solvency of a company and whether the loan is granted by a bank or a finance company have a significant impact on the interest rate of the loan. Solvent companies may obtain a corporate loan from the bank at a very low cost, even at a marginal rate. The interest rates on corporate loans of financial companies vary greatly depending on the financial situation of the company applying for the loan. For small businesses, the interest rate can be up to 50%.
A Business Limit is a Business Loan without collateral which, like a loan, is intended to enable the company to grow and invest. The business credit line application process is done electronically and you can apply funds to your account within two days.
The difference with a corporate loan is that the business limit is non-repayable , meaning that you do not have to repay it monthly. Thus, the limit can be reduced according to your own situation – it is enough to pay the interest on the used limit monthly.
In corporate financing solutions, corporate credit is perhaps the broadest concept, as it often works like a corporate credit line – so it can be mobilized as it is repaid. On the other hand, many finance companies provide corporate loans with a regular repayment program.
In most cases, however, a corporate loan cannot be re-activated, meaning that the solution is close to a corporate loan, but the cost structure is usually similar to a business limit, and no real collateral is required as a rule. An overdraft facility is therefore a flexible form of corporate credit and should always be available for re-activation within the credit limit .
Who grants a business credit and how much?
A business line is a relatively new product and is not granted by many. As a rule, financing companies grant a business limit. The grant award criteria vary depending on the financial company. However, the background is checked every time and the company must be in good financial standing. The contract may also be terminated if it appears that the company is unable to pay. Corporate financing in the form of a corporate credit facility ranges from USD 5,000 to USD 100,000.
What are the interest costs and expenses of a business limit?
The repayment of the company credit is not tied to a payment program, but the loan can be shortened according to the company’s situation and needs. Thus, in practice, it is sufficient to pay the monthly interest and other costs of the limit if, for example, the investment needs of the company or other factors raise capital.
How a business limit is priced varies from one provider to another – just like applying for a loan. It is also worth comparing prices and cost structures. In most cases, the interest cost is determined on a monthly basis, depending on how the limit has been raised. Because the current limit can be paid off at any time, the interest rate charge is flexible: the rate runs only during the months when the limit is used. For the rest of the time the limit is available, you will usually only be charged the agreed monthly fee.
Some financiers also charge a withdrawal fee for mobilizing a business limit – especially noteworthy, as ongoing and sometimes minimal withdrawal fees can be a hassle.
As a rule, the start-up cost is charged when opening a business line. A business limit can also be terminated immediately, at no additional cost to most operators, but it is good to note that any reactivation of the limit is typically charged at full cost.
With all of this in mind, it’s a good idea to compare different funders carefully when considering a business limit or corporate loan.
Benefits of a corporate loan and a business limit
A corporate loan and a business limit are suitable for slightly different purposes. A corporate loan is well suited for a company that wants a straightforward one-time loan that is paid off within a payment plan. In some cases, this can help you manage your gearing, and monthly loan repayments also provide some control. The Corporate Loan is particularly well suited for business start-ups and situations where a company needs more capital to grow a business. A tight corporate loan repayment plan can also help with corporate risk management. On the other hand, the Corporate Loan does not provide flexibility for long-term financing needs.
The strength of a business line is precisely its flexibility – it is well suited to short-term capital needs, such as balancing low-season cash flow and financing current expenses. The limit is also suitable for sudden acquisitions and, in some cases, for financing even larger investments. As a flexible solution, the limit can always be re-activated. Even if the drawn overdraft balance is paid off, this is not a down payment on a corporate loan, but the limit is still available to the company.
Most finance companies also require overdraft facilities to be repaid with a minimum amount, so it’s a good idea to look at the repayment requirements as well. At its most flexible, the company credit line is completely repayable and in that case it can be fully reduced depending on the cash situation of the company.
The flexibility of a business credit line, such as the potential repayment freedom, the absence of real collateral and the flexibility to re-open a credit limit, make it extremely versatile and suited to a variety of situations.
Before you decide how to finance your business, carefully look at the options and consider them. Think about which solution would best serve your company’s goals and objectives.