Typical Rates & Fees Associated with Business Loans

business loanBusiness financing or obtaining a needed business loan is not really rocket science for banks, non-bank lenders or loan companies. However, when the manufacturer offers its finished product - the company expects to get paid (to hide both costs and profits) within a relatively short period (60 to 3 months).

Banks / lenders in contrast could wait years (quite possibly decades for large commercial or the property market loans) before recovering their principle (costs) let alone their profit (attraction and fees). Consequently, banks and other loan companies must work very hard to guarantee the safety and soundness of the company requesting a loan (borrower) and to reasonably ensure themselves that they will be repaid.

Most lenders (banks and non-bank lenders) typically look for two items when assessing a company loan prospect. Is the business willing to repay the loan according to how it or it's owner have repaid debts in earlier times (credit report) and can it repay; meaning does it have the cash flow (contained in the business) to make the monthly payments and will this earnings continue over the life with the loan.

Nevertheless, as stated, while this isn't rocket science - banks and other lenders tend to get quickly caught up in long-winded calculations with determining a borrower's ability and willingness to repay. One such calculation is a business's Debt-to-Equity ratio (from time to time called the Debt-to-Worth percentage).

David A. Duryee in his book "The Internet marketers Guide to Achieving Financial Succe$$", states about the debt-to-equity ratio "It can be a basic financial principle that more you rely with debt verse equity to finance your company, the more risk you face. Therefore, the better the debt-to-equity ratio, the less safe your business. "

Here, equity could mean either outside equity injected in the company by investors, founders or owners, equity generated in the business from sustained profitable operations, or both.

With plain English, this concerns the assets of the business enterprise. Most businesses have to purchase or generate a assets over time; consequently equipment or property, intangibles and also financial assets like funds and equivalents or accounts receivables.

Thus, if your business offers financed these assets with a great deal of debt - should your business not be capable of pay, there would be many other debt holders in line to liquidate those assets to attempt to recoup their loses - making your brand-new debt holder (your bank or lender) lower over the list and in a worse position to obtain repaid should your business default.

To clear this up a tad bit more, as Mr. Duryee advises, think about this percentage in dollars; "If you apply a dollar sign to the current ratio, a debt to help equity ratio of two. 25 would mean that there is $2. 25 in liabilities for every $1. 00 of equity, or that creditors (banks and lenders) have a little over twice as much invested in the business as does the managers. "

To help calculate your business's Debt-to-Equity percentage, simply divide your comprehensive liabilities (both short-term together with long-term) by equity - or visit the financial ratio calculator at Business Money Today to check out the Safety Ratio section.