Traditional lending is the most common form of loan capital for a business through a bank. The loan provides medium or long-term finance. The bank sets the fixed period over which the loan is provided (e.g. 3, 5 or 10 years), the rate of interest and the timing and amount of repayments. The bank will usually require that the business provides some collateral for the loan, although in the case of a start-up this security often comes in the form of personal guarantees provided by the entrepreneur.
Bank loans are good for financing investment in fixed assets (such as plant & machinery, land and buildings). They are generally charged at a lower rate of interest that a bank overdraft. The interest rate can be either fixed (e.g. 8% per year on the amount outstanding) or variable (where the interest rate varies depending on the bank’s base rate).
Bank loans tend not to be offered to start-ups or businesses with a track record of poor profitability and cash flow. Such businesses are perceived as being high-risk by banks that, as a result of the credit crunch, are more cautious about the kind of lending they offer.
"CanAm was more concerned with growing my jewelry business than my credit score. My time is very limited and did not have time for loads of paperwork. I have dealt with many companies before but CanAm’s procedures were fast and effective!"
- Raj H. (Jewelry Store Owner)