WHAT YOU SHOULD KNOW ABOUT AN INVESTMENT LOAN?
An investment loan is a bank product intended to increase the value of company’s tangible assets. It is a direct and long-term loan provided to business entities. It not only covers investment expenditures, but also allows for purchasing intangible assets. It allows to achieve long-term goals that will become the basis for developing your organization.
Who are the recipients of an investment loan and what are its possible purposes?
A business investment loan is granted to entrepreneurs who meet specific economic and financial requirements. A bank or a financial institution conducts a thorough analysis of the economic efficacy of the company. The Client should provide a detailed business plan and cost estimation, as well as a justification for the investment. As collateral for the loan, the entrepreneur’s own contribution is usually required, amounting to 10–30% of the investment value. The formal path is therefore relatively complicated, however the investment loan entails numerous benefits. First of all, it facilitates growth of the company’s potential, increases its competitiveness on the market and improves financial liquidity of the organization.
An investment loan is granted for a specific purpose. You can use it to finance machines and equipment necessary for your company’s operations, building your own office or modernizing your real property, repairing industrial facilities or covering the costs of purchasing new technologies, concessions or licenses. Business investment loan may also be used to cover financial liabilities, purchase copyrights or patent rights, securities or shares. So it may serve almost any purpose – to purchase tangible assets, cover financial needs or finance intangible assets. The outlays, however, must come from the tangible assets of the company.
Investment loan terms and conditions
An investment loan is a long-term liability and it is most often granted for a period of several or more years. The time of implementing the undertaking has a significant impact on the loan term. A business investment loan may be disbursed as a single payment or in tranches adjusted to the implementation milestones. The tranches are disbursed when the entrepreneur fulfills specific requirements related to implementation of the investment. Moreover, you may choose a credit line option, i.e. the loan recipient may freely use the funds until achieving the predetermined debt limit.
There are two types of investment loan repayments. The first one is based on principal installments, while the second one involves aggregated installments. The value of principal installments varies, since interest is charged on a decreasing principal amount, however, the amount of aggregate installments is identical in every repayment period. Financial institutions usually offer a grace period for payment, i.e. postponement of the first installment. Before deciding to take out an investment loan, you should also consider the loan currency and its insurance.