What is a corporate loan
Business Loans: Capital for business investment
In most cases, a corporate loan is used to secure the company's liquidity. Thus, corporate loans represent an important basis for securing corporate financing.
In Germany, corporate loans are used by medium-sized companies to purchase new machines or a fleet of vehicles, for example. In addition, corporate loans provide fresh capital for the acquisition of new technologies. This includes, for example, online shop software or logistics software.
Business start-up capital
Corporate loans are also used to finance start-ups. In this case, banks as lenders advance capital so that entrepreneurs can pay for the necessary equipment or equipment for the start-up. Employee salaries or fees can also be paid for the initial period via start-up loans.
Short term or long term corporate loans
Basically, corporate loans are divided into two different types, which are determined by the respective term.
- Short term corporate loans
These loans have a relatively short term and quickly provide companies with capital, for example in the event of a sudden drop in income or the loss of an order. Short-term corporate loans are usually granted as cash back loans, guarantee credit, discount credit or current account credit. The short-term loan can prevent the company from defaulting.
- Long-term corporate loans
This type of loan is also known as an investment loan. These are loans that are needed for large purchases such as machinery or technology. These loans then have the longest possible term.
For self-employed or companies only
The whole purpose of a corporate or corporate loan is that the financing benefits the company. Therefore, the beneficiaries of corporate loans are companies or self-employed who need the capital for their business. A loan comparison is always worthwhile.
The general public benefits indirectly from the loan amount through investments. This is how the corporate loan is different from the personal loan. The latter only serves to fulfill personal wishes.
Corporate loans can be taken out by legal entities under public or private law as well as by commercial partnerships. As a rule, the managing director signs the loan agreement. If there are several managing directors sign these together.
Requirements for existing companies
When applying for a corporate loan, the creditworthiness of companies is checked. For an initial check, the financial data are used by similar service providers such as SCHUFA.
But the SCHUFA is only responsible for private individuals. However, the SCHUFA data can also be used to additionally check the creditworthiness of the borrower.
Disclosure of the financial situation
Similar to private customers, business owners must also explain the financial situation of their business. The following documents can therefore be requested from the bank:
- Business reports
If a current tax assessment is not yet available, banks can request a business analysis (BWA). A tax advisor usually lists all income and expenses for the current financial year.
- Balance sheets
If companies have to report, the balance sheets are to be presented before the financing.
- Excerpts from the commercial register
This enables the lenders to learn more about the company owners and the distribution of company shares. For example, liability in the event of payment default is regulated differently if a GmbH is financed or a sole proprietorship.
- Bank statements
With the help of current account data, banks can get an overview of ongoing business activities.
- Tax bills
The tax assessments give banks an insight into the profits of the past few years.
- Articles of Association and Contracts
By examining contracts, banks can control liabilities and obligations towards third parties.
On the basis of these documents, the bank not only checks the current situation, but also tries to derive further business developments from them. In most cases, banks have their own scoring system in place to rate the applicant's creditworthiness. The interest rate on the corporate loan, for example, then depends on this classification.
Credibility as an important factor
Numbers are only one side of the process when applying for a corporate loan. At least as important is the personal credibility that a borrower exudes with a corporate loan. Ultimately, banks take a great risk with large loan amounts. That is why the personal charisma of the applicant plays a decisive role.
5 tips on loan application for the company
- Be as open as possible about the financial situation of your company. Do not cover up the facts. Sooner or later the bank will notice these “negative aspects” anyway.
- Be confident but not arrogant.
- Dress appropriately, not too casually, but not too formal either.
- Remain authentic. Do not try to hand in someone else.
- Do not give evasive answers to possible questions.
Apply for a company loan at the house bank
It can be an advantage for entrepreneurs if they apply for their company loan at the house bank. Those who have proven themselves there through very good payment behavior and liquidity can have advantages for their company when applying for a loan.
Business start-up loan: requirements
Business start-ups or self-employed people need outside capital in particular because they usually do not have sufficient capital when they are founded.
In contrast to existing companies, start-ups cannot be subjected to a credit check. This applies at least to the business, since no valid business data is yet available. But here, too, there is the possibility that banks will still carry out a conventional credit check to test the applicant's financial conduct.
The business plan replaces the credit check
Entrepreneurs have to submit a business plan for their loan application. It is important to the lender because it shows whether a business idea can be successful.
At the same time, the business plan proves that the entrepreneur has the necessary experience to ensure that the business idea leads to long-term success. In addition, the business plan indicates the competition the company has to expect.
The aim of every business plan is to convince the lender of the business idea and to provide him with adequate solutions for possible risks.
A business plan should be able to provide answers to these questions
- Who is founding the company? What know-how and what skills does the founder have?
- What does the company offer and what is special about its services or products?
- How is the market environment?
- Is there any competition?
- For which target group are the products or services intended?
- What are your marketing plans?
- Which type of company does the founder choose?
- Are employees required? Which formalities have already been completed / still need to be completed?
- What opportunities and risks does the business idea have?
- How should the company be financed?
- Are there documents, diplomas, certificates or other official documents that confirm performance or knowledge?
The financing plan - that's what matters
The financing plan is an important part of the business plan. This section explains exactly how much equity is available and how much debt is required. Thus, the bank's funding plan tells the bank exactly how much money is needed for funding.
Alternative financing options for start-ups
Entrepreneurs don't always have to go to the bank when they need outside capital. Possible contact points are also:
- Friends and family: For the start, friends and relatives can often help out with capital. To avoid arguments, it is advisable to draw up a contract with friends.
- Venture Capitalists: Business start-ups can borrow money from investors. They can award company shares for this. The investors can be other companies or private investors.
- Crowdfunding: A modern variant of corporate financing is crowdfunding. Here, private individuals usually provide different amounts of money. Crowdfunding is usually carried out over the Internet using so-called “crowdfunding platforms”. For their contribution, investors then usually receive shares in the company or the financed product as soon as it has been completed.
- Funding organizations: Organizations like the “Business Angels” support start-ups by providing capital on favorable terms. Business start-ups can also fall back on various initiatives of the federal states, municipalities or the federal government.
- Start-up grant: Those who receive unemployment benefit have the option of receiving a start-up grant for start-ups. The grant is applied for at the responsible employment office. Similar rules apply to the approval as to the application for a corporate loan at the bank. For example, applicants must also submit a business plan.
Collateral for a corporate loan
The bank can request various types of collateral for corporate loans. A distinction is made between physical security and personal security. In the case of personal security, for example, another person guarantees the loan.
In the case of property security, property is deposited as security. Personal security is usually not enough for corporate financing.
The physical certainties include the following values:
- Life insurance
The type of security can affect the conditions, for example the interest.
The specialty of mortgages
When collateral is deposited, the burden on the collateral usually decreases with the decrease in the loan debt. In this case, one speaks of accessory security.
However, if a land charge is entered on a property or piece of land for the company loan, the burden is fiduciary. This means that the land charge always remains the same, no matter how much of the loan has already been repaid. Only when the loan has been paid in full is the land charge canceled.
Mortgage and land charge
For banks, the mortgage or the land charge represents a particularly high level of security, as they can also make use of them if, on their part, there are other claims against the borrower from other contracts.
Alternatives to the corporate loan
In order to supply themselves with fresh capital, large companies can also issue bonds or securities. If bonds are issued, companies must take into account that they can realize the guaranteed return on capital through corresponding income.
When issuing shares, numerous other requirements must also be met. For example, the company must first be converted into a stock corporation.
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