A corporate loan is a loan that is available to businesses rather than private individuals. It is for this reason that corporate loans differ from personal loans. Depending on how much money your business needs, you can choose from a variety of different methods. You may wish to reinvest the profits from your business. Or you can find a partner or investor who will invest some money in your company. However, in this article, we’ll discuss corporate loans. Which are common ways for businesses to raise funds.
What is a corporate loan?
Often, people use corporate loans interchangeably with a business loan or enterprise loan. Corporate loans are two types available on the loan market. A retail loan, and a business loan. A retail loan is one that is given to an individual consumer. Loans for personal use, such as home loans, auto loans, student loans, gold loans, credit cards, loans against property. They fall into the category of retail loans. We can further divide a secured loan into a secured loan and an unsecured loan.
It is possible to get a secured or unsecured corporate loan. Secured loans require a business asset as collateral to ensure their repayment. Nonpayment of a loan can cause the lender to seize the property in order to claim its value. You can borrow more and repay it over a longer period with secured loans, as compared to unsecured loans, which offer a higher interest rate and shorter payment terms.
Businesses often use unsecured loans for urgent funding needs. A financial institution does not require any kind of security or collateral. However, businesses with poor credit ratings can’t apply for unsecured loans.
Types of corporate loans
You can choose the appropriate corporate loan depending on your needs. Financial institutions in Ghana offer the following corporate loans.
1. Business term loan
An inexpensive term loan provides capital for purchases of property, renovations of properties, buying of new machinery, and updating technology. There is usually a fixed repayment schedule and fixed interest rates for term loans.
2. Loan against securities
Pledging securities is one of the many ways you can raise funds for your business. If you have financial investments such as mutual funds, insurance policies, bonds, shares, fixed maturity plans, and/or exchange-traded funds. It is possible to renew the term of a loan against securities every 12 months.
3. Letter of credit facility and bank guarantee
An installment loan is a type of credit facility in which a bank is going to guarantee to the seller you will pay on time for the estimated amount. The bank will cover the balance if you cannot pay for the purchase.
4. Cash credit facility
As a business owner, you can get cash credit by pledging business assets like receivables or inventory. An asset that is pledged for cash credit has a limit for withdrawal of 70% to 80% of its value, and the loan is renewed every year.
5. Overdraft facility
With an overdraft facility from a bank, you can deduct funds from your current account below zero, with a specified limit. The pledged securities determine your overdraft limit. They will charge you interest on the amount that you have used. Banks reserve the right to request short notice repayment of funds.
For more on business loans you can read:
- Business start-up- Everything you need to know
- SME loans in Ghana
- Business loans in Ghana-How to apply
What is the interest rate on a corporate loan?
A company’s credit score, loan repayment history, debt, and other factors may influence the interest rate. Business requirements and the financial stability of the organization may also affect the rate.
What is the eligibility for a corporate loan?
For you to be eligible for a corporate loan, there are certain criteria that make you eligible. They include:
- As a loan applicant, you need to have an established business for at least 5 years.
- Profitable business or enterprise for the last two years.
- An established business with good credit ratings and a history of success is most desirable.
- The bank will examine your credit history and repayment status if you have applied for one previously.
- A default-free applicant who has never defaulted on any loan.
- A citizen of Ghana who has never been convicted of a crime.
What are the requirements for a corporate loan?
The requirements include:
- An outline of your business plan.
- Form and passport-size photos with a duly completed application.
- Application and business cards.
- Documents of identification.
- You can provide proof of address by supplying electricity or water bills, ration cards, trade licenses.
- The bank’s account statement.
- Proofs of the business address and vintage.
- Financial statements and records for the last three years.
- A tax certificate for income tax and a tax return for sales tax.
- Certificate of incorporation.
- Registration and licensing.
How can I apply for a corporate loan in Ghana?
Financial institutions and banks offer corporate loans. Depending on your convenience and resources, you can either apply online or offline for the loan. Do the following to apply online:
- Visit the official website of the lender.
- Fill out the application form correctly.
- Upload your documents.
- Submit and wait for feedback.
Alternatively, you can visit the nearest branch and speak with a representative. They will consider you for both grants if you meet all the requirements and submit all necessary documents.
Advantages of a corporate loan
Small, medium and large businesses benefit from business loans.
1. It is possible to borrow a large sum of money for major business projects.
2. Borrowing money is fully under your control.
3. The funds are easily accessible.
4. There is usually a low interest rate.
5. Tax deductions are available to you.
6. There will be no repayment due if your business fails.
7. Enhance your working capital.
9. You won’t have to share the profits of your business.
10. Credit score for your business will improve
Disadvantages of a corporate loan
Corporate loans also have some disadvantages that might discourage an applicant from applying.
The following are some of these disadvantages of corporate loan are:
- Loans are not available to all businesses
- Assets are typically used to secure them
- Lenders rarely grant the full amount you requested.
Existing businesses and industrial companies apply for corporate loans when they need working capital or funds. Besides helping the company function smoothly, this loan also covers long-term and short-term expenses. You can use the fund for a variety of expansion-related activities, including paying for daily expenses, financing working capital, upgrading machinery. Both commercial and government lenders offer corporate loans. In borrowing money, you must make sure that your business is always careful. A loan can be the perfect solution for businesses that don’t want to deal with the hassles of finding a business partner or investor. If you cannot make your monthly repayments, you could lose your assets as collateral. So ensure that you will pay back the amount you borrow before you borrow it.