Pros and Cons of Corporate Bank Loans

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Corporate loans are generally high value loans and hence there are a lot of complications involved into getting them. For a corporate it becomes really difficult to ascertain if they should take on a corporate bank loan or raise money by means of additional bonds. Whether to go for them is a tough question to be answered even by the experts, it makes a lot of sense to know the different facets related to the benefits and restrictions related to these loans.

Corporate are on the lookout of loans which can help them in their short term, mid- term and the long term planning and meeting the requirements under different time horizons. When we look at the short term requirements of the corporates we find that they majorly relate to working capital requirements. Any need which arises out of the differences in the current assets and liabilities, for the payments to the suppliers, wages and salaries to the employees and so on are listed under the working capital requirements. When we look at the mid-term and the long terms requirements they are more or less related to purchase of properties for the business, investment towards setting and running a research and development wing and other similar requirements.

Categories of Bank loans

Secured

Secured loans are the ones which involve a collateral. Any asset of the company whose valuations are equal to or more than the amount of loan one applies for is referred to as collateral. When the banks approve these loans they generally possess the right to sale of the assets kept as collateral with them, in the event that the borrowers fail to repay the amount to the lenders as per the agreed terms. These loans are comparatively easier to get and the interest rates offered by the banks on them are low when compared to the other loans in the industry.

Unsecured

When your company enjoys a good reputation, the business fundamentals are strong and the profits show a good demand and future prospects for the company, you have all the probability of getting unsecured loans wherein there is no need to pledge any of the company assets. Other than these the credit history and the score of the company plays a major role into getting these loans. Companies which enjoy a good credit rating can easily qualify for these loans for people with bad credit and at a much better term and interest rate as compared to the ones with a lower credit rating.

Merits and demerits of Bank Loans

Which one should you go for a bank loan or issuance of bonds will be decided only on the basis of a number of factors which are listed below:

Credit standing of the borrower:

Any of the companies having a medium to average credit standing would be required to take a bank loan. These are comparatively better options when compared to the bonds as they offer a higher interest rate and are difficult to deal with.

Line of Credit

Getting a line of credit for the business needs can prove to be an excellent decision. Under this provision, the borrowers do not start with a heavy interest payment because the take small amounts of loan from the approved limit they have. This allows them to meet their current obligations related to working capital needs with ease and do not have to lose on the business credibility just because of the paucity of funds. Most of the times the companies have to risk their assets under these loans as collaterals.

A lot depends on the business environment when it comes to the selection of the loans or the issuance of bonds. When the situation is tough like in the current circumstances, it is always advisable to go for the business loans from the banks. However, it is these times when the banks put a freeze on the line of credit function and hence it really becomes a tough decision when it comes to the business loans.

Comments: 18

  1. Latosha April 22, 2014 at 4:21 pm Reply

    In term of finance which would be the recommended method of starting up in terms of money? Pros & cons?

    Take it slow and use personal saving to set up small and just reinvest any profits in growth OR Take out some sort of business loan/find potential investors to set up a larger company straight away?

  2. Vern April 26, 2014 at 1:32 pm Reply

    What are your thoughts about America’s Future?

  3. Idalia May 1, 2014 at 10:09 pm Reply

    I am considering becoming a mortgage salesperson/loan officer. I want to know what it is like. If you have done it, do you recommend it? What are the pros/cons? Long hours? Good pay? Anything about the job would greatly help! Thanks

  4. Galen May 3, 2014 at 1:54 am Reply

    i have 25 questions for my class that i need help answering, and the information is not in the book [ my teacher told that to the class] i would greatly appreciate any information that would help

    1] Definition of principle and interest in regaurd to investing
    2] How does compounding interest build wealth?
    3] What are the basic rules to acquire wealth? [theres 3]
    4] What us the difference between saving and investing?
    5] What are the different methods of savings?
    6] Why are mutual funds a good investment?
    7] What are corporat funds?
    8] What are Munipal bonds?
    9] What are Federal bonds?
    10] What are the 2 types of car insurance [and which is required by law?]
    11] What is a deductable?
    12] What are the 2 basic types of life insurance?[give both of course >.<]
    13] Why does a person need life insurance?
    14] What are the different sources of loans from best to worst [theres 4]
    15] What are the pros and cons of buying stock?
    16] Who benefits from credit transactions?
    17] Definition of Capacity [when taking out loans]
    18] Definition of Character [when taking out loans]
    19] Definition of Collateral [when taking out loans]
    20] Definition of Disposable income [what is the formula to calculate it]
    21] What is sales tax
    22] What is income tax
    23] What is a progressive tax [give 1 example]
    24] What is a regressive tax [give 1 example]

    like i said. any for of helpful information would be greatly appreciated
    economics class is not something i would consider to be easy

  5. Maragret May 17, 2014 at 5:49 pm Reply

    i have to do a debate in class and i need pros and cons if this protest is an effective way to change things,

  6. Catarina May 18, 2014 at 4:36 am Reply

    Is one better than the other? Pros and Cons of each….

  7. Bruno May 18, 2014 at 5:58 am Reply

    what I’m talking bout is the business in retail/food type of industries.
    What are the pros & cons? Your opinions?

  8. Leonardo May 18, 2014 at 10:57 am Reply

    I am 25 and working part time at UPS. I am going back to college, taking business administration in May, and UPS has a tuition reimbursement program for their part time employees. However, even though its a great deal, I am still wondering if its the right move. It will still take me 3 years to complete, and now it seems all the jobs they offer graduates these days are temporary, unstable and dont even as well as they should. Drivers at UPS however can earn just over $60,000 a year, good health benefits, pension plan and plus they are unionized, so great job security. It’s hard being a driver, but honestly even with a college diploma I’d be lucky to find a job with all that rolled into one.

  9. Jared May 20, 2014 at 12:14 pm Reply

    what are the pro’s and the con’s of using one or the other?

  10. Marion May 28, 2014 at 5:32 pm Reply

    I am 44 years old. I have years of management experience and I am tired of working for other people so I am interested in starting a business. I don’t really know what to try or the best way to go about it. Any suggestions would be appreciated.

  11. Evette June 8, 2014 at 1:46 am Reply

    I’m a big CNBC viewer and am still not sure I have a handle on what QE2 is and what the pros and cons are.

    So, “Central Banks” increase the money supply–is this literally printing more money? It then purchases government bonds and corporate bonds—-somehow this eases pressure on banks?

    Japan is frequently brought up as an example where this practice screwed the pooch…so to speak and ruined their economy.

    Can anyone put this is simple terms an idiot such as myself can understand? How is this decided and when is it implemented…is it a specific date and amount?

    Why are there so many people on both sides of the fence–honestly to me both arguments seem to make sense–hence my confusion and probably silly question.

  12. Elton June 19, 2014 at 1:54 pm Reply

    I have a business and need a loan for about $15,000 for a business van… I have a business plan but its mostly for my knowledge .. Nothing that will work in a bank…

    I have great personal credit and have a loan for a car already that i am paying.. so i am sure i wouldnt be denied..

    But im not sure if i should get a personal or business? Whats the difference?
    I heard it is very hard to get a loan for business…

    I’m going next week to the banks so any info or personal experience will help greatly!

  13. Lorna June 21, 2014 at 6:36 am Reply

    Hi! My wife and I have decided to look into buying a laundromat together. We just made the decision and I am starting a business plan and all that. My question is this: We have about 35-40 thousand dollars to invest. When obtaining a business loan, how much roughly would we be expected to put up toward the business? 20 percent? 30? Can you get a loan for 10 percent down? We want to buy the business but have a little working capital left over if possible. And I need to know the price range of what I should be shopping in. Any input would be greatly appreciated!
    Thanks.

  14. William June 21, 2014 at 10:37 am Reply

    what websites or companys can u apply for a small business loan if credit is bad( if personal credit score is 560)

  15. Valentine June 21, 2014 at 10:52 am Reply

    My friend and are setting up a new business. Can we get a business loan with our securing it on the house. It needs to be with a bank or someone propper.
    Sorry was meant ot say ‘with out securing on the house’.

  16. Crysta June 23, 2014 at 1:58 am Reply

    looking for someone reputable to get me 100k business loan.
    looking to get a business loan. business is established for 7 yrs and have collateral such as dump truck and machinery. can anyone point me in the right direction.

  17. Arnoldo June 23, 2014 at 7:23 am Reply

    I want to buy a small convenience store and i need loan for 50k… I have been in the U.S. for 6 months.. Do i get loan on business please give valuable suggestion…

  18. Francesco June 23, 2014 at 11:00 pm Reply

    I have read somewhere that, giving loans for unsecured business, what is exactly about? How bankers give loan for unsecured business?? Thank you

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