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North Country Alliance
Doing Business Guide.
The purpose of your
loan is critical in determining the type of loan you request. You also
should make sure that the timing of the repayment schedule on your loan
matches the incoming cash flow you will use to make the payments.
There are a number
of loan types available to commercial borrowers, including lines of credit,
seasonal commercial loans, installment loans, collateralized loans (which
are secured with assets), credit card advances, and term loans. Regardless
of the type, most loans have the following features.
Common Loan Features:
- Loans may have terms ranging from less than a year to 15 to 20 years.
- Interest rates vary depending on the term, type, size and risk of
- Repayment may be a lump sum or on a monthly or quarterly schedule.
- Payments may be delayed until the funds help your business generate
- The loan may be committed, meaning the bank agrees to lend to you
under certain terms as you need funds, without requiring you to re-apply
- Some loans require that you maintain compensating (minimum) balance
levels in a deposit account.
You also should be aware that the lender would expect you to agree to
certain performance standards and restrictions in order to ensure that
your business can repay the loan. These restrictions, known as covenants,
representations, and warranties, commonly include the following:
- Maintenance of accurate records and financial statements
- Limits on total debt
- Restrictions on dividends or other payments to owners and/or investors
- Restrictions on sale of fixed assets
- Performance standards on financial ratios
- Current tax and insurance payments
- Life insurance on principals in business