UK Loans
and Their Types
Definition of Loan:
A loan is like a debt; given by the lender to the borrower
and taken back with extra amount known as interest. It is
repaid in installments or up front. In technical terms,
interest
is called the cost of a loan. In the modern business world, there are many financial
institutions providing loans for business. Loans are divided
into two categories that are given below:
Short-Term Loans:
Short term loans are the type of loans that meet maturity
within a year or less or are payable within 12 months. Short-term
loans include lines of credit, working capital loans and accounts
receivable loans.
Long-Term Loans:
Long term loans are the type of loans that are held for more
than one year or meet maturity after one year. Mortgage loans
can extend from 10 to 20 years. These loans are taken up for
capital expenditures of the company such as vehicles, purchasing
expenses, construction, furnishing, etc. They are also helpful
when business needs help when it is in a depressed or declined
cycle. Following are the types of loans banks provide in the
UK for starting up small businesses:
Credit Cards:
According to surveys, credit cards are widely used for
business purposes
in the UK. A revolving credit is considered a good business
tool here.
Lines of Credit:
This type of loan is very useful for daily operations. Credit
line offers are usually for 90 days but can go a year or two
depending on the amount borrowed.
Equipment Leasing:
This is a technique used to help business get equipment. The
bank requires your credit history and it should be good. Another
way is to lease through the subsidiary of the company.
Letters of Credit:
The bank acts as an intermediary party between the borrower
and the lender. It promises to pay the money to the lender
if all the conditions are met. This is very helpful in international
business.
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