When you decide to take on a loan, you could come across a plethora of terms that you are not acquainted with yet. The policy documents can go on for multiple pages with several terminologies that are technical and legal in nature but are essential considerations for a policyholder. As a business owner, you might not be aware of what these terms mean and their implications. This can lead to confusion and a number of hassles in the future. Let us take for example the term ‘consolidation’. You could assume that the term refers to the presentation of accounts of a company. However, the term in the industry is used to talk about loans taken up to pay off existing small business loans.
Empowering yourself with knowledge on these terms could help you make a prudent decision regarding the business loan. It makes sure that you are on track and you know what the jargon means and its implications on your financial health. While you can access this information through an agent, you should know more on the terms to clear misconceptions and make smart decisions. You can access expert guidance and assistance on understanding business loan products on portals such as Finserv MARKETS with their 24×7 online and offline support services.
Here are some of the terms that are used in the policy document. While this is not a comprehensive list, it covers the most important words that you will come across during the application process.
One of the most common terms used while applying for a small business loan is amortization. It refers to the different methods by which a borrower can make repayments. If amortized, you will need to pay the loan with scheduled payment options such as Equated Monthly Installments (EMIs).
2.Bullet and balloon payments
A bullet amortization plan enables you to pay your interest and principal through scheduled payment options. With the balloon plan, you will need to pay the entire amount at the end of the policy term.
3.Accounts payable and receivable
Accounts payable is the amount owed to the lender that needs to be paid with bullet or balloon repayment options. The term ‘accounts payable’ refers to short-term debt or the amount that people owe to you.
This jargon is used to refer to the loan product. It essentially constitutes any capital raised that needs to be paid back in a specified period of time and at a particular rate of interest.
Earnings before Interest, Tax, Depreciation, and Amortization is a ratio used to indicate the financial health of your business.
It is the number of days or months provided to the policyholder to make repayments if he or she is delayed in the same.
7.Fixed interest rate
A fixed rate does not change over the tenure and is not dependent on market conditions.
8.Floating interest rate
It varies between a bank rate and a variable rate and can be a useful option if the market conditions are favorable towards the borrower.
9.The line of credit
The line of credit enables you to spend an amount up to a certain limit and to repay the same (in addition to interest) at a later stage.
the five C’s: You should look at the five C’s on the document including capacity, character, collateral, capital, and confidence. Capacity refers to your repayment capacity. The lender will assess your assets and ongoing debt before giving you a business loan. The character refers to your credit score. You should ensure that you have paid off your previous debts in time to reflect a good credit score. The collateral is provided to the lender as a backup if you default on your loan. The capital is the amount you are looking to borrow, and lastly, confidence refers to the amount of expertise in conducting business. This can help gauge the success of the enterprise and the borrower’s ability to make repayment in the future.
If you are still confused about certain terms, you can log on to an online portal such as Finserv MARKETS and access 24×7 support. This digital lending platform offers Bajaj Finserv business loan, which is one of the best business loan offerings in the market. The Bajaj Finserv business loan interest rate enables you to make repayments with ease. Before finalizing on a loan product, you should review the documentation in detail and look at the provider’s reputation in the market. With the right business loan product, you can now fulfil your life goals of building a successful business with ease.
Also, read about SME loan meaning and its benefits.
Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus, when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you make it happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!