Friendship Between Banks And Small Businesses

Entrepreneurship is always encouraged by the present economic scenario. But it also poses some challenges to the small business owners as well. The se small businesses need funds as working capital to run the day to day operations. It is to meet these specific requirements of small businesses that banks have started offering various plans of loans. Whatever may be the plans, but there are two basic types of bank loans- Secured and Unsecured loans.

Secured loans are sanctioned by the lender in return for collateral which may include the debtor's personal assets like house/car. If there is a failure in re- payment on the part of the borrower then his collateral would be detained by the lender. The borrowers should not expect that they would be getting an amount which would exceed the value of the asset. Instead, the amount would be 60% to 80% of the value of the asset. Unsecured loans can be obtained without any security but these loans are hard to obtain as no lender would show courage to lend money without any security. Credit cards are a typical example of unsecured debt and its availability depends on the borrower's credit worthiness.

Unsecured Credit Lines provided by banks and other lenders to small businesses denote the maximum amount that can be borrowed by a business owner. These lines and associated interest depend upon the type of business and the lender's policy. This can be facilitated by the presence of a checking account of the business with the bank, an age old business and a good credit history of the owner as well as his business.

Short term loans with a 3 year term and fixed interest rates provide the necessary working capital but would be obtained only with adequate security. The long term loans are needed to purchase a particular asset and these assets are used as the security. With these different plans, the small businesses are looking forward to a brighter future.