In Handshake 2.0's series on business bank loans, we asked Kelly Kendrick for questions companies can ask themselves on whether or not a bank loan is right for them. If a company decides to apply for a loan, we asked, "What are questions a company should ask a business loan bank officer to make sure they understand the terms of the loan?"
Kelly Kendrick answered:
- Is the interest rate fixed (does not vary over the entire term) or is the interest rate variable (moves up and down over the term of the loan based on the changes of an underlying index)?
- How long do I have to pay the loan back? For a line of credit, this would be when your principal portion comes due, or matures. Up until this time you may be required to make interest payments on the loan. For an amortizing loan, where your payments consist of principal and interest and the principal is paid down as you go (the loan amortizes), you will want to know the amortization period. Typically, the longer the amortization period, the smaller the principal and interest payments will be, but you may end up paying more interest over the life of the loan. The type of loan and repayment terms will depend on the purpose of the loan and the collateral which secures the loan.
- Do the loan terms match the purpose? For example, a short-term liability should finance a short-term asset and a long-term liability should finance a long-term asset.
- What collateral will secure the loan? Collateral offers back up support beyond the normal cash flow and lowers the risk of loss on a loan for the Bank.
- What will happen if I pay late or can no longer repay the loan?
First Bank & Trust Company, one of the top community banks in the United States, is a diversified financial services firm with office locations in southwest Virginia, northeast Tennessee, and the New River and Shenandoah Valleys of Virginia. Financial objectives are addressed by offering free checking products for personal and business accounts, and assessing lending solutions managed by mortgage, agricultural and commercial lending divisions. Comprehensive financial solutions are available through trust and brokerage service representatives.
You're invited to read more about First Bank & Trust Company on Handshake 2.0. First Bank & Trust Company is a client of Handshake Media, Incorporated, the parent company of Handshake 2.0.