Business Loans
Business Loans
Their purpose
Things To Know
- Business loans help a company with cashflow, operations, acquisitions, or projects.
- Most industries borrow for their needs, either occasionally or routinely.
Financial institutions loan funds to businesses for many different purposes. A corporation may need capital to finance the acquisition of another company. The acquired company may provide the cashflow needed to repay the loan, provide assets that could be sold for profit, generate more earnings with improved management, or in other ways enhance the market value of the purchasing company’s stock.
An institution may also loan funds to a business for projects such as bringing a new product to market or expanding market share. Some projects, such as mining, oil refining, or large industrial plants, may require a long-term loan of many years.
Working-capital loans
In contrast, working-capital loans provide short-term funds (usually a year or less) designed to keep a business operating. For example, a business may need a loan to buy raw materials or purchase inventories. Sometimes working-capital loans are made to businesses that are seasonal in nature. A retailer may need to purchase inventories in August and September to sell during the winter holiday season.
In addition to retailers, common borrowers include farmers, who may purchase seed and other supplies in the early spring and then repay the loans after harvests. In fact, most industries and commercial ventures borrow funds either occasionally or routinely.
