Getting a Loan Can Be Tricky – Tips to Borrow a Loan
In business, a loan is an unsecured loan given to a business by one or more people, institutions, or other financial entities. The recipient is typically liable only to repay the original principal amount borrowed and the interest is usually charged on that debt till it is fully repaid. The term ‘loan’ is typically used in a commercial context to refer to any financial transaction involving the borrowing of funds with the potential for repayment of funds after a specific period of time. This transaction may be made on credit (from a bank) or debit (from a customer).
A borrower has two options with regard to borrowing money: he can seek a loan from a financial institution or he can apply for a loan from another lender. The former option is preferred when there are requirements from the borrower’s side, which cannot be met by the latter option. Financial institutions are commercial lenders and they have to follow certain guidelines laid down by the government in order to be eligible for a loan from them.
Such guidelines govern the maximum amount that can be borrowed, the repayment structure, the interest rate and terms and conditions of the loan. To get a loan from a bank, the borrower generally needs to have a good credit rating. In most cases, it requires a decent credit history which will ensure that the bank believes the borrower is a safe investment opportunity and will therefore provide a loan of a sufficient size and interest rate.
Private financial institutions are in a better position than banks to provide a loan to anyone who applies. However, they do not enjoy the benefits of the government’s leniency towards borrowers who have bad credit. Borrowers who are looking to borrow a large amount of money must apply for such loans through private lenders. The repayment structure of these loans is significantly different to that of banks. The rate of interest and repayment periods are usually much higher as well.
When a loan is issued to a person, it creates a demand for more money. Money is added to the money supply through lending. Lending refers to both borrowing money and making money supply. There are two types of lending: direct lending and indirect lending. A bank makes money supply by borrowing it and then lending it out. On the other hand, money is created by creating assets and later selling them.
Direct lending can be done by a company or a private individual. Indirect lending is done by the government through its central bank. A mortgage is a type of direct lending transaction. The loan rates applicable to different types of lending are specified in the lending agreement.