Many of our clients and online business partners have asked up on numerous occasions - What is a bank loan and how does it work
? Well, bank loans are priced according to the bank's cost of funds plus a premium for the credit of the borrower and the maturity of the loan. In addition there are some upfront fees called origination fees that must be paid.
Bank loans are a little bit different as they have a different set of requirements altogether. Especially with the lending industry being a little bit tighter with their lending practices, one may have a difficult time getting the loan to go through. They are also almost always floating rate securities and therefore have minimal interest rate durations, making the asset class a suitable investment for investors who expect rising interest rates.
Bank loans generally have a low correlation to most other asset classes, making them an appropriate diversifier within a broader portfolio. Bank loans are very flexible and they can vary in the length of time that the loan has to be repaid.
Bank loans are not an option for everyone and are extremely difficult to obtain - they are usually only given to businesses with outstanding credit and a proven track record. If a local bank has determined that a potential client do not meet their criteria or if they can not provide enough financing, there are probably non bank sources within some websites that can assist in providing a loan.
Bank loans are among the most difficult to obtain loans. Banks are picky about lending money and are a little bit different as they have a different set of requirements altogether. Especially with the lending industry being a little bit tighter with their lending practices, you may have a difficult time getting the loan to go through.
Bank loans are not spontaneous financing as is trade credit. Borrowers must apply for loans, and lenders must grant them.