Business loan: what are its characteristics and how do you obtain it?
Do you need financing for your business? You can take out a business loan. Specifically designed to meet the needs of a company, this loan comes with tailored terms. What are its characteristics? How do you obtain this type of loan?
What are the characteristics of a business loan?
A business loan is used to finance various projects related to your professional activity, such as:
purchasing new equipment (machinery, vehicles, materials, etc.);
strengthening your cash flow;
financing your innovation projects;
improving your premises (renovation, expansion, etc.);
purchasing new premises;
financing your energy or digital transition;
acquiring a new business, etc.
Business loans are reserved for legal entities (companies) or self-employed individuals. They allow you to:
borrow the total purchase amount excluding VAT;
take into account the specific circumstances of your business;
benefit from advantageous options for deferring payments or early repayment.
In most cases, business loans will be granted at a fixed rate. This allows you to know in advance how much the loan will cost you until its maturity and avoid unpleasant surprises in case of interest rate fluctuations.
However, some loans may be offered at variable rates, particularly when financing your cash flow or a real estate project. In this case, the rate is determined based on an index and is adjusted according to the terms of your loan agreement. Two situations are then possible:
If the index falls, your interest rate and the cost of your financing will also decrease;
Conversely, if the index rises, your interest rate will also increase, and the cost of your financing will be higher. With a term equal to the lifespan of the financed asset (generally between 2 and 7 years), the loan can last up to 15 or 20 years in the case of a real estate purchase.
By opting for a business loan, you avoid using your cash reserves to finance your project and also avoid bringing in investors to your company's capital.
Note: you can deduct the interest on your loan from your profit and loss account.
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How do I obtain it?
Before contacting your account manager, it's essential to carefully prepare your application:
Assess your needs to determine the loan amount and its purpose;
Develop a financing plan to present your project and demonstrate its viability and profitability;
Gather all necessary documents, such as your profit and loss statements, recent financial statements, and financial projections.
You will, of course, need to provide several supporting documents for your business loan application, such as:
Your company's registration certificate (Kbis);
The company's share capital;
The identities of the partners;
Your identity card;
Proof of address…
With all this information, your account manager will be able to analyze your application, your financial situation, and propose the most suitable solution for your needs.
Generally, you will need to contribute a minimum amount of capital in addition to the loan. The required down payment can range from 10% to 30% of the total loan amount, depending on whether the loan is intended to finance the purchase of commercial premises, the acquisition of an existing business, or the creation of a new venture. The required down payment may vary depending on the business activity and its risk level.
Loan terms differ from one bank to another. While you can certainly contact your current bank, you can also research and compare the different interest rates, application fees, repayment terms, and types of guarantees required by other institutions.
What does the loan agreement contain?
Once you and your bank have agreed on the various terms, you can accept the bank's offer by signing it. The agreement includes a copy of the specific terms and conditions, the general terms and conditions, and, if applicable, a copy of the insurance terms and conditions.
The specific terms and conditions contain information about you and the loan you have taken out. This document typically includes the following information:
loan amount;
purpose of the loan;
type of loan;
interest rate, usually fixed (and the revision terms if the rate is variable);
term (in months or years);
number of installments;
frequency of installments;
if applicable, names and addresses of guarantors;
any additional fees: file opening, processing fees, various commissions;
total cost of the loan, i.e., the annual percentage rate (APR);
if applicable, borrower's insurance (including covered risks, coverage rate, and cost);
guarantees and their terms of enforcement.
Another document, usually titled "General Loan Terms and Conditions," outlines the respective obligations of the bank and you as the borrower. This includes information regarding the conditions in case of:
early repayment, in full or in part;
disputes;
Failure to pay installments.
Should you insure a business loan?
Generally, a loan offer includes borrower's insurance. You should therefore receive an insurance policy.
This policy details the insurer's coverage in the event of illness, accident, temporary or permanent disability, or death.
Insurance covering these risks is not mandatory, but it is strongly recommended. Banks very often require this insurance before granting a loan to protect themselves against the risk of non-repayment in the event of death, disability, or incapacity. For your part, taking out borrower's insurance allows you to secure your repayments and protect your business and your heirs.
