An investment loan very often becomes the only possible solution for companies that want to develop in their field, but do not have enough money for new investments; such as buying equipment, premises, hiring new people and implementing ideas.
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What is an investment loan?
To understand the idea of an investment loan well, you must first define the very concept of an investment loan. As the name implies, this is a type of bank loan, the funds of which should be directed to entrepreneurial purposes, namely: new investments in business and business development. Therefore, investment loans to individuals are not provided.
Anyone who wants to take advantage of this type of financial support must first open their own business, and then apply for credit funds that they will allocate for investment.
An investment loan is usually a long-term commitment, and its size is very high; some banks do not even have an upper limit on the amount of an investment loan. Such an obligation is most often granted for a period of up to 20 years. Some banks also offer short-term investment loans with a maturity of up to one year, as well as medium-term loans for a period of one to five years.
An investment loan is distinguished by the need to have its own contribution. In each individual banking institution, this issue is regulated differently. Some banks meet customer expectations and provide investment loans without their own contribution, while others require at least 20% of the total investment amount, and others 30% or more.
Investment loan for new companies
Offering investment loans to new companies is quite rare. As a rule, banks decide to provide loans to companies with extensive experience in the market for many years. When it comes to investing in young enterprises, having your own contribution becomes a prerequisite.
For example, if a new courier company submits an application for the purchase of a vehicle for the transportation of orders and it needs 2000000 rubles, the bank may require 20% of the investment costs from the company – in this case 400,000 rubles. Then the loan will be granted subject to the submission of a business plan and confirmation of ownership of the specified amount.
New companies often receive loans on slightly worse terms than companies that have been operating for years. We are talking about higher fees and interest rates, as well as a shorter repayment period and additional formalities in the process of obtaining a loan.
Investment loan for the purchase of real estate.
According to statistics, companies most often apply for an investment loan to buy their own real estate – for example, an office, warehouse or industrial premises. Then an investment loan becomes similar to a mortgage loan. Some banks provide repayment of the loan with purchased real estate, others require a sufficiently high own contribution, which can be 30-40% of the value of the property.
Investment loan for the purchase of transport
The second most popular purpose of an investment loan is the purchase of a company car. This type of investment rarely entails high costs, however, the project requires financial support from banking institutions (especially when it comes to buying a new car or more vehicles).
A company receiving an investment loan for the purchase of vehicles must submit a business plan that proves that this type of investment is profitable and will bring a profit commensurate with the invested.
Investment loan for companies – how to get it?
The process of applying for an investment loan is quite time-consuming and complex, as it involves a number of formalities that the borrower must complete in order to receive financing. Below we will describe all the steps that need to be taken to obtain an investment loan:
Writing a business plan is the first and most important step in obtaining an investment loan, the purpose of the business plan is to convince the lender that you should allocate funds for the planned investments.
Preparation of a certificate of entry in the register of enterprises or other documents confirming your activities;
- submission of financial documents of your company;
- providing an account statement from your company, as well as preparing an appropriate confirmation of your own contribution.
As you can see, the procedure is not easy. The borrower must convince the bank that his company is fully solvent and profitable, and additional investments will help in its further development and will guarantee higher incomes and profits, so that the repayment of the loan will be smooth and timely.
In addition, a very important step is to choose a suitable banking institution that will provide you with an investment loan on favorable terms for you.
Investment loan – the terms of the loan may differ from one banking institution to another. Some banks meet the expectations of their customers and offer more profitable solutions, while others, taking care of their own safety and profit, offer less favorable terms of an investment loan for entrepreneurs.
The main conditions for obtaining this form of loan include:
Owning your own business – only entrepreneurs and legal entities can apply for an investment loan. Every person who applied for this form of loan, the bank will definitely refuse.
Own deposit – the amount of your own deposit (if any) varies depending on the requirements of the selected bank. Some institutions can provide an investment loan without the company’s own contribution, others require 20% or even 30-40% of the investment amount, which is a kind of guarantee of solvency.
Business plan – as we mentioned earlier, a business plan is the basis for obtaining an investment loan. Bank applications for such a loan are generally not accepted without providing a business plan. The amount, the required own contribution and the loan repayment period, as well as the bank’s interest rate and commission will depend on how effective the business plan will be.
Banking institutions are ready to offer more favorable credit conditions to those customers who have a good business plan.
Investment loan – interest rate
The interest rate on an investment loan depends on such factors as: the bank’s offer, the creditworthiness of the company and the assessment of the borrower’s business plan. In fact, the bank determines the interest rate on an investment loan individually for each borrower – depending on the objectives of his loan and planned investments, as well as the profitability of the company. The interest rate can vary from 4% to 8%.
In addition to the interest rate, the total cost of an investment loan – as in the case of any other form of loan – also includes the amount of commission. As a rule, banks do not have a high commission on investment loans, so in the worst case, it can range from 0.5% to 5%. Some banks, on the contrary, can offer an investment loan without commission, only at an interest rate.
Investment loan or alternative solutions for companies?
As we mentioned earlier, obtaining an investment loan is associated with many formalities that a company must perform when receiving credit funds. If you want to avoid them, you should think about alternative solutions, for example, obtaining a non-bank loan. What benefits do you get:
- it is not necessary to have your own contribution;
- no need to write a business plan;
- it is not necessary to have a business, so the loan can be used as the first investment in your own business;
- the borrowing process is carried out online;
- a quick decision on granting a loan.
However, there are drawbacks that should be kept in mind when deciding to take out a loan instead of an investment loan, namely:
The loan amount is limited and, as a rule, much lower than the loan amount; the short repayment period is one to two months, and the investment loan can be repaid for up to 20 years.
Analyze your own capabilities and goals to choose the best solution for you and invest in your future.