Business

Common Business Loan Terms That You Should Know

If you are an entrepreneur just starting up with your business, you should look out for the best loan. However, getting a business loan is not one easy task and requires proper knowledge. If you are looking forward to a small business loan, you should prefer consulting the experts for advice. Seeking expert advice will be of great help because the industry is vast and expanding at a rapid rate.

Before you move forward and take out a business loan, you must be aware of these general terms:

Fixed/ Variable interest rate and Annual Percentage Rate (APR)

There is a significant difference in interest rate and annual percentage rate (APR).

When you are getting a small business loan, your primary consideration should be business loan interest rates. However, there are two types of interest rates, the fixed and variable one. These two usually determine how long your loan is to last. The fixed interest rates ensure that you will have to pay a fixed amount throughout your loan term. Nonetheless, it is different with a variable interest rate because the interest rate will vary depending on the market conditions. Banks generally offer business loan at fixed interest rate.

When you begin to look out for a business loan, annual percentage rate should be your prominent thing to judge. The APR refers to the percentage that signifies your total amount, thereby helping you calculate interest rates and all the other charges. It may include the interest expense. Most of the times, the annual percentage rate is more than the interest rate. APR will help you estimate how much your business will be affected by the small business loan.

Cash flow statement

Cash flow is an efficient part of the business loan. The cash flow statements determine the inflow and outflow of the cash within a specified period. The cash flow plays a vital role in informing you about the financial condition and flexibility of the business. It can help you determine whether you are experiencing profit or loss in your business.

Business credit score

If you have been taking loans for a long time, the credit score can help to determine that. Although the functions are same, business credit score and personal credit score are two different essential aspects. If you do not have a proper business credit score, the lenders will take your personal credit score into consideration.

Principal

Principal refers to the loan amount that you will be borrowing. It excludes all the additional interest charges. Even when you begin paying the interest the principal always happens to be the original loan amount. If you take a certain amount for a small business loan, the principal always happens to be the same. Paying off the loans each month deducts the money from the interest.

Even when you are starting with your business, you should have a sound knowledge of the business terms. A little research while taking the loans can play an important role in easing the whole process. Being clear about the loan terms and its acronyms can prove to be extremely beneficial for your overall business.

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