Trying to expand your business, but worried about the financial constraints? Availability of a business loan may help you expand your business. The loan also helps you deliver premium quality products and services to your customers. However, it is essential to get a hold of certain business terminologies before beginning the journey.
The following glossary comprises key terminologies that are defined with a clear and concise approach:
1) Loan Tenure
It’s the interval of time during which a borrower reimburses the loan amount back to the financial institution. The duration of a loan cycle may range from a few months to several years, depending on the amount of money borrowed and the rate of interest charged.
2) Interest
It is the sum of money that a company has to pay in addition to the loan amount as a cost of borrowing the funds.
3) Interest Rate
It is the percentage of the business loan that a financial institution charges to the borrowers. It is calculated on the basis of the principal amount of the funds borrowed by a company.
4) Principal
It is the amount of money that one borrows. The amount serves as the foundation for evaluating the interest rate that a borrower has to repay over a fixed period of time. The amount is crucial to determine the period of a loan cycle. A lower principal amount may require borrowers to reimburse the funds at higher interest rates within a shorter timeframe. On the other hand, a higher principal amount may require borrowers to repay their debts at lower interest rates within a longer timeframe. A borrower is obligated to pay back the principal amount along with the interest rate set by the financial company.
5) EMI
Equated monthly instalment is the fixed amount of money that a borrower has to pay to the lending institution until the loan gets paid off. It helps borrowers to easily manage their finances without having to spend large sums of money to meet their business needs. Factors including the principal amount of the borrowed funds, the loan period, as well as the interest rate are considered before calculating the EMI.
Where,
P = principal amount
R = monthly interest rate
n = number of monthly instalments
6) Maturity Date
It is the date on which the principal amount of the borrowed funds becomes due. On this day, a borrower must reimburse the remaining funds in full amount. Ideally, it is the date of the final EMI payment by the borrower, assuming all the preceding payments were made regularly on time. Once the borrower repays the funds, the debt agreement between the borrower and the financial company ceases to exist. Once all the repayment terms have been met on the maturity date, the financial company returns the assets to the borrower in case of secured business loans.
7) Accounts Payable
It is the sum a business has to pay to its vendors and suppliers for providing essential materials, inventory, as well as equipment. Generally, payable items comprise legal fees, contractor payments, supplier invoices, and other charges. Payables are listed as liabilities on the balance sheet along with debts, salaries, and additional costs.
8) Accounts Receivable
It is the money that the customers owe to a company for the services and goods it offers. In other words, it’s the payment a business expects to receive after delivering its products and services.
9) Line of Credit
A line of credit allows a company to avail a specific amount of capital from a lending institution. It’s a financial agreement between the lending institution and the company, which enables the latter to pay back the loan in the form of EMI.
Grasping the business terminologies is necessary to make sensible decisions before availing a business financial solution.
At Arka, we offer tailored secured business loans that can help you boost the productivity of your business or even expand it.
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