BANKS.

Banks have an important role in the formation and growth of a business by entrepreneurs,
they are key source of funding and support due to their financial products. Entrepreneurs
have to present a solid business plan, financial statement and details about how the funding
will be used in order to secure the banks loans. Banks offer the support through loan,
creditworthiness and viability of the business are important considerations used by the bank
before financial assistance. There are several factors that determine the specific financial
assistance that one can be accorded by a bank; the type of business loan, age of the business
and revenue are some of these considerations (IMF, 2014).
TYPES OF BANK LOANS.
1. Equipment loans – they are standard options for financing equipment which are
availlable from banks. The application process for an equipment loan varies
depending on the type of equipment, some equipment only require submission of the
business information while others ( larger pieces) will require the bank to perform an
inspection. The loans usually have lower interest rates than unsecured loans, since
equipment loans are secured by the equipment being purchased hence less risk to the
lender ( Guinan, 2023). Equipment financing works by using the equipment you’re
buying to secure the loan. The equipment becomes collateral, meaning the lender can
seize the asset if you fail to repay what you borrow. You may also have to provide a
personal guarantee, which requires you to be personally responsible for the loan if
your business can’t pay the loan back. This puts your personal assets at risk
(Wendel & Neptune, 2014)
.

2. Lines of credit- a line of credit is a flexible form of financing that provides business
with access to a predetermined pool of funds. Line of credit offers entrepreneurs with
a wide array of options in terms of borrowing, offering them flexibility to manage
cash flow, cover short term expenses and take advantage of business opportunities.
When setting up a line of credit, the bank and the business agree upon maximum
credit limit.
A business line of credit is a flexible loan option for businesses. It may also be
referred to as a revolving line of credit. You’re familiar with a line of credit if you use
a credit card. It allows you to access funds from your credit line, pay back some or all
of it, and access it again. With a line of credit, the business owner decides when, if,
and how they will use that borrowed capital (IMF, 2014).

3. Small business administration loans- the small business administration work with
banks to provide loan guarantee, making it easier for entrepreneurs to qualify for
loans. These loans are specifically designed to assist small business owners who may
face challenges in obtaining traditional bank financing. The challenges are mainly due
to factors such as limited collateral, a short credit history, or the perception of higher
risk associated with new or small businesses. These loans have favorable terms and
conditions, including longer repayment period and lower interest rate compares to any
other financing option (Ackah & Vuvor, 2011).
 4. Term loans- term loans are the standard options for both established and startup
businesses. They are mainly used to buy new equipment or for expanding business
and usually due after five or more years (IMF, 2014). They are usually of two types;
Secured loans- these are loans that require collateral, such as business assets or
property, which the lender can seize in case of default.
Unsecured loans- this type of loan does not require specific collateral but may have
higher interest rates.
Borrowing term loans usually depends on the type of industry, the purpose of the loan
and business financial status.

5. Commercial mortgages – banks provide mortgage financing options for

entrepreneurs purchasing commercial real estate property. These mortgage can
finance construction, acquisition or renovation. Examples of banks that offer
mortgage loans include; Equity, Absa, Standard Chartered, and Co-operative bank
(Roulac, 2014).

Benefits of commercial mortgage loans

a) Buy premises or used to release equity- Entrepreneurs can leverage a business
mortgage to acquire property for their business operations. For the businesses that
already owns property, they use mortgage to release equity, turning property’s value
into accessible funds.
b) Obtained for commercial purposes where the business will be operating - This
implies securing a mortgage specifically for commercial real estate where the
business intends to operate. Commercial mortgages typically have terms tailored to
the unique needs of the business.
c) Releasing equity for commercial property owned- entrepreneurs can use a
commercial property as a collateral to release equity which provides additional capital
for business expansion, investment and other financial needs.
d) Equity release on residential property- it involves use of residential property as
collateral for mortgage to release equity, which can be used as additional capital for
business expansion, investment, or other financial needs.
e) Financing for purchasing commercial property- it involves obtaining a mortgage
specifically for purchasing commercial real estate, it’s a common practice for
businesses looking to acquire property for their operation.
f) Discounted interest – some banks offer special benefits such as discounted interest
rates to its members.
g) Variable rates of interest- mortgages are availlable of different interest rate one can
opt for either a fixed or variable interest rates. A fixed rate remains constant
throughout the loan term, providing predictability in monthly payments. On the other
hand, a variable rate may change based on market conditions, potentially offering
flexibility if interest rates decrease.

6. Microloan – it’s a type of short-term business loan that gives small businesses
essential funds to maintain and grow their operation promoting financial
 independence among individual. The loans are usually flexible and short-term loans
hence aa better option as compared to the long-term loans (CRS, 2020).
Reference
Ackah, J., & Vuvor, S. (2011). The Challenges faced by Small & Medium Enterprises
(SMEs) in Obtaining Credit in Ghana.
CRS. (2020). Small Business Administration Microloan Program. https://crsreports.congress.gov
IMF. (2014). IMF POLICY PAPER REVIEW OF FLEXIBLE CREDIT LINE, THE
PRECAUTIONARY AND LIQUIDITY LINE, AND THE RAPID FINANCING INSTRUMENT.
http://www.imf.org
Roulac, S. E. (2014). Commercial mortgages – Money is available if you are willing to pay the
price. Journal of Property Investment and Finance, 32(6), 589–609.
https://doi.org/10.1108/JPIF-06-2014-0042
Wendel, C. B., & Neptune, R. (2014). The Increasing Role of Banks in Equipment Finance:
Establishing a Sustainable Engine for Growth Municipal Leasing: Fitting a Round Peg In to
a Square Hole (Vol. 32). www.leasefoundation.org.