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Why are lenders most willing to loan to corporations?
Loans appeared because of an objective necessity under conditions of economic development. When some participants in economic activity have free money, and others need it, credit allows the exchange of funds.
Credit is money or other material resources, which are transferred for temporary use for a certain fee (interest) on return conditions.
Different borrowers’ needs and conditions of the credit are different, so all loans are divided into separate groups according to certain characteristics. Myfin loans your reliable assistant in getting a profitable loan. Let’s take a closer look at what kind of loans there are.
Types of loans by type of lender:
1. Bank loans
It is issued by banks to small businesses, big businesses, or individuals through cash or non-cash funds.
2. State loans
State loans lending to businesses from the state budget or borrowing by the state through the issuance of money, the issuance of government bonds
International financing of a country or its constituent entities by other countries against government guarantees of repayment with payment of interest
Types of loans according to the method of lending
It is provided by the producer or seller in goods against debt with deferred payment until a certain date and repayment of the debt with interest. Commodity loans help speed up the sale of products and cash circulation.
The lending of funds by a financial institution at interest to make a profit. Cash is provided with a designated purpose to pay for the cost of goods or services or any purpose. The loan is granted on staggered repayment of the debt and payment of interest to use the money according to a schedule established by the agreement or within a certain period.
Types of loans by collateral
● Collateralized – with pledges of real estate, valuable property, and securities. These include mortgage loans (secured by real estate), car loans, apartment loans, and loans to purchase fixed assets (equipment, vehicles, production lines).
● Guaranteed credit lines for businesses or commercial loans for business development are often issued against guarantees of other legal entities. Other banks, large corporations, and insurance companies may guarantee repayment of the loan.
● Guaranteed loans are secured by a guarantee from another person or entity responsible for the repayment of the debt. When making an unsecured loan to people with unconfirmed income, Lenders require a third-party guarantor.
● Blank (unsecured) loans are unsecured cash loans to individuals. These include credit cards, student loans for education, and personal consumer loans.
Principles of credit
The credit helps to use money more efficiently and accelerates economic growth when used properly. The entire lending system is based on principles to which all participants in economic relations agree:
● Borrowed money must be repaid in full.
● The money must be paid back within a clearly defined time frame.
● The borrower pays the lender a fee for the use of the funds.
● The lender has the right to demand collateral or security.
In most cases, people are better off without credit. But buying everything with your own money, taking it out of circulation, is not always the best way to go. Sometimes loans help to save money or even to earn more. It is important to calculate everything correctly, compare options and make an informed decision!
Should I take out a corporate loan?
Businesses need to buy materials at the lowest price and produce goods exactly when there is demand for them, and the highest prices are set. Business development usually requires credit because additional finances at the right time provide an opportunity to significantly increase income or protect against significant losses.
But entrepreneurial activity is always associated with risk, so the business owner must calculate different options and think through decisions. You should not immediately take a loan for a startup. Try to invest more time and effort into developing the idea or finding venture capitalists.
When it is profitable to take a loan
There are situations where lending money, even at interest, is profitable. Sometimes a loan helps avoid even higher financial costs and improves your standard of living in the long run. Here is an example:
A graphic designer works remotely, Doing freelance home business and receiving orders through a freelance exchange. He is offered to do an interesting and financially attractive project, but his no longer new computer finally broke down. He has two ways out of the situation:
Give up the job, look for another one, find one, and start working, saving money for the computer for 8-9 months.
Purchase a new computer on an installment plan, start working on the project, earn money in 3-4 months and pay back the loan.
In this case, rejecting the loan will lead to material costs because, for a while, you can remain without earnings at all.
Remember that borrowing is much easier than paying it back.