How Business Loans Are Structured

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    Loan Purpose

    • Loan purpose always plays an important role in structure, especially with business loans that can so many different purposes. For instance, loans to start a business are much more difficult to get than loans that businesses apply for to help acquire other businesses, or start internal projects. When lenders look at business loan proposals, the purpose of the loan is the first thing examined and controls what other loan structure elements are created.

    Loan Amount and Length

    • The loan amount and length of the loan are some of the most important parts of the business loan structure. Loan amounts depend largely on the purpose of the loan. Businesses may need only a line of credit option to cover monthly expenses, but a very large loan to buy property. The length of the loan depends on how quickly the lender wants to be paid back and the size of the loan itself.

    Loan Rates

    • Interest rates are another very important part of the loan structure, and one that lenders often change in response to external factors. A lender may raise the loan rate to compensate for a project it considers especially risky. A lender may also lower rates to make its loans more appealing to businesses. The interest rate is typically applied to the loan principal every payment cycle.

    Collateral

    • Because businesses have many different types of assets and often want risky loans for new ventures, an important part of business loan structure is the collateral that lenders demand. Some lenders may be content with asset collateral for whatever assets that the business is planning to buy, while others may want shares in the company or other types of guarantees.

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