subject: On Loans and All Things About Them [print this page] On Loans and All Things About Them On Loans and All Things About Them
Loans have always been a source of much needed capital of businesses. Without capital, businesses will not flourish the way they are supposed to. It is through capital that a start-up business acquires its initial assets that will enable to establish itself. It is also through capital that an already established business expands and sustains its operations.
The idea behind loans is that a lender extends credit to a borrower. In return, the borrower pledges to pay the amount borrowed to the lender at a later time. Depending on the agreement between the lender and the borrower, payment can be done either on installment basis over a specified period of time or in bulk on or before the mutually agreed deadline lapses.
A loan can actually extended by anyone. It can be extended to an individual by people such as friends, family and co-workers. However, in their more formal sense, loans are being extended to individuals or entities by financial institutions such as banks, leasing firms, venture capitalists and credit corporations.
Merchant loans and other forms of loans are classified into two types. The first type is secured loans, wherein the borrower pledges an asset as collateral to the lender in exchange for the approval and release of the funds loaned. Secured loans offer protection to lenders in a sense that the collateral forwarded to them by borrowers can be liquidated in case of borrower default
The other type of loans is the unsecured loans. A lot of merchant loans and other forms of business loans fall under this category because they do not require borrowers to pledge assets for collateral to the lender. While they are more convenient and more flexible than secured loans, unsecured loans are usually more expensive given the huge risks lenders get into as they extend uncollateralized credit to borrowers.
Whether it is secured business loans coming from banks or unsecured merchant loans from a credit company, a loan has truly been helpful to businesses. Securing a loan for a business is almost akin to that of a person being given a vaccine by a doctor. In the case of a loan and a business, the loan is the vaccine that a business needs in order for it to become sustainable and prevent the occurrence of financial malaise that could jeopardize its operations and the interests of its owners.
