In order to successfully develop and continuously increase their production capacity, firms of different caliber have to regularly seek financial support from credit organizations. It is most advantageous to work with your “own” bank, through which the entire cash flow of the company is flowing. In this case, you will not have to collect a large package of documents to take out a loan, as the bank can use its own data and independently assess the company’s solvency. If the financial capacity of the company is adequate, then the credit will be granted on relatively loyal terms. It is particularly advantageous for banks to lend to legal entities as it involves considerable amounts with real guarantees.
For what purpose can a company spend money on a loan?
The answer to this question is quite voluminous, here are some examples:
1. new equipment;
2. replenishment of current assets;
3. purchase of real estate, construction, repairs;
4. staff training;
5. purchase of special equipment, fleet;
Each of these points is a direct investment that will definitely have a positive effect on the firm’s profitability over time, so bank debt is always justified in such cases.
Another type of credit a company takes at the beginning of its existence is Start Up. Understandably, every new business needs cash support at the start of its business, that is, bank credit. And getting such help is relatively easy, just have to prove to your lender that the business idea you are developing is truly profitable and quick to pay off. As evidence, the new firm submits its business mechanism plan, then easily obtains a loan.
In deciding whether to grant a loan to a firm or not, and to what extent, the bank is guided by the size of the business, its cash flow and the proper fulfillment of its tax obligations. These are just the main factors that add to the range of additional indicators of a company’s economic stability. The company always has a loan against a pledge of an existing or a purchased property, and the money can also be guaranteed by guarantors of other companies.
Overdraft – one of the types of credit for a company
Often, a credit company has a slightly different name – a bank guarantee or an overdraft. This kind of financial help is needed by the company when settling with its partners. In other words, when counterparties start demanding payment from them, the bank transfers the necessary amount of money to their account, thus opening a credit to the firm and paying off its debts to others (there may be many, depending on the bank’s guarantee level).
These types of loans are most common to a firm, unlike those taken to start a business.
Step-by-step instructions for getting a credit for a firm
1. We carefully select the most favorable terms offered by creditors. If possible, contact the bank that serves the firm.
2. Once the bank is selected, we send an application for credit to the firm. This document must also be accompanied by documents proving your legal existence and ability to pay:
• Company’s balance sheet with revenue and expenses, financial statements showing the profit or loss of the business, other forms of reporting provided by the bank;
• a full description and analysis of the position of the debtors and creditors of the accounts;
• details of the company ‘s past borrowings and their current position (other borrowings);
• documents showing the amount of current assets in the accounts;
• Certificate of the State Revenue Service that the company has no tax debts;
• a copy of the company’s articles of association;
• a statement that the company is indeed registered as a legal person;
• documents certifying the identity of the manager of the company;
• Existing licenses;
• other documents that the Bank may require at its discretion.
3. As soon as all necessary documents have been submitted to the bank for review, your creditor will carry out an analysis of your solvency. He will also consider the collateral offered as a pledge. This can be real estate, equipment or finished goods, other company guarantee, state guarantee.
4. After the bank verifies your solvency and assesses the collateral offered, a decision will be made. In case of a positive result, the credit will be issued to the firm within a short term.
5. The final stage for obtaining a loan for the firm will be the signing of a contract between the bank and the company, which will stipulate the main terms of the loan:
• the annual rate,
• purpose of lending,
• loan repayment period for the firm,
• Schedule for repayment of credit.
Company loan differences from loans to natural persons
Compared to a loan issued to an ordinary citizen (natural person), the credit to a firm differs not only in its volume but also in the amount of the loan. Receiving a company loan also involves a relatively extensive process of collecting various documents. It may take several days to a few weeks for a company to do so. The waiting time for the bank’s decision is also much longer than it is for lending to individuals.
Of course, getting a company loan, or more precisely, signing a contract, will require a whole meeting: both sides need to bring together lawyers, executives and other executives.
The firm must not use credit funds in an uncontrolled manner. Lending to legal entities requires the management of the firm to report on the use of the credit facility, so that money may be spent only for the purposes stated in the contract. That’s why company executives often apply for consumer loans in their own name, so they can get their money faster and easier.