Corporate Loan

Key facts at a glance:

• A corporate loan is a loan granted to companies to finance investments and operating expenses.

• There are various types of corporate loans, including investment loans, start-up loans, guarantee credits, inventory financing loans and overdraft facilities.

• Under certain conditions, corporate loans can be supported by government subsidies, particularly for founders with few collateral assets.

• In addition to the company's creditworthiness, detailed business figures and a well-founded business plan are often required.

• Loan amount, effective annual interest rate, term, interest rate lock-in period, fees, repayment schedule and early repayment penalty are key factors to consider when choosing a loan.

• Banks and other lenders generally require collateral such as land, property, vehicles or credit guarantees.

• Interest rate conditions depend on the company's creditworthiness, the type of loan, the term and the use of collateral.

Corporate Loan – A Definition

What is a corporate loan? A corporate loan is a loan disbursed to companies, self-employed individuals or freelancers. It can be used to build fixed assets or make investments. Common uses include the acquisition of land, machinery and vehicles, as well as intangible assets such as training costs or patent applications.

A further distinction is whether the loan is purpose-bound. With such a loan, it is generally necessary to provide the financing partner with proof of the purpose-bound use of funds.

Is There Government Subsidised Funding?

Under certain conditions, you can apply for government subsidies. This is particularly advisable if, for example, you are a founder with limited collateral. However, not all corporate loans can be financed through government subsidies.

Subsidised loans are rather more commonly integrated into a comprehensive financing concept. The aim is to find the best combination of different financing instruments for your project. Before considering these types of loans, you should therefore first seek expert advice before applying to a development bank.

What Prerequisites Must You Meet for a Corporate Loan?

In addition to the standard requirements that apply to all loan disbursements, such as the applicant being of legal age, having a German residence and no negative credit bureau entry, for a corporate loan you must disclose your business figures to the financial institution to determine repayment security.

This typically involves the balance sheets of the last three years, the current business management assessment (BWA), which must be no older than three months, a statement of current loan obligations and order backlog, and a business plan.

In the case of a business start-up, a convincing business plan is essential. After all, you cannot yet demonstrate three years of business development. But with a well-founded business plan, you can substantiate your detailed earnings forecast. The principle applies: the more convincing it is, the more likely your start-up will receive a loan.

What Types of Corporate Loans Are There?

Used as an umbrella term for various forms of loans, corporate loans are distinguished between purpose-bound and non-purpose-bound loans.

If the loan is tied to a specific use of funds, the money may only be used for the intended purpose. If, however, a purpose restriction is excluded, the capital can be used freely.

Regardless, you should be aware in advance of what you want to use the capital for. The following types of loans are available to you:

• Investment loans: Used to finance fixed assets, this loan serves investments that remain in the company on a long-term basis. The investment loan, also known as an asset loan, is used, for example, to finance land, vehicles or machinery.

• Start-up loans: This form of corporate loan helps young entrepreneurs and self-employed individuals support their business start-up with debt capital. Supporting the start-up phase, the term here extends in most cases over five to ten years.

• Guarantee credits: Guarantee credits are surety obligations that do not involve a disbursement. Although no interest or instalments are incurred, a commission is agreed that depends on the term of the guarantee credit.

• Inventory financing loans: This type of pre-financing is used for the purchase of goods or materials for production. These framework credits with shorter terms provide the entrepreneur with a degree of flexibility.

• Overdraft facilities: To bridge liquidity shortfalls, the entrepreneur is provided with a temporary credit. Characteristic of this form of corporate loan is, in addition to the immediate repayability, its use for short-term capital needs.

What Should You Watch Out For with a Corporate Loan?

There are numerous credit providers and loan offers. You should always compare the key loan conditions:

• Loan amount: The amount of your loan depends on your personal financing needs. Note the minimum and maximum loan amounts of different providers.

• Effective annual interest rate: Visible in every loan offer, the effective interest rate quantifies the total annual cost of a loan. It is derived from the nominal interest rate and the ancillary costs of the financial transaction.

• Term: In combination with the loan amount and the interest rate, the term influences the instalment amount and defines the period within which the loan must be repaid.

• Interest rate lock-in: Current market interest rate changes cannot affect the interest rate fixed in the loan agreement.

• Fees: Banks are no longer permitted to charge additional processing fees for a corporate loan. However, fees are often the rule with other financing partners. Transparency and openness are key here.

• Repayment schedule: The instalments can either remain constant or decrease with a declining interest portion. Especially with subsidised loans, there is often the option of repayment-free initial years.

• Early repayment penalty: The bank can demand this when you wish to repay the corporate loan prematurely or ahead of schedule. You must also consider these costs when contemplating a debt restructuring.

• Collateral: The banks' requirements for collateral and their valuation differ between individual providers.

What Collateral Do You Need?

If your company is financially sound, it is possible that you may receive a loan based solely on your good creditworthiness and solid business figures.

Alternatively, loans to self-employed individuals and entrepreneurs are granted using collateral. These include, for example, land, property or vehicles. In addition to physical collateral, credit guarantees are also common with corporate loans, for example through guarantors or guarantee banks supported by the federal states.

A further option for securing a loan is the personal guarantee of a company's shareholder.

What Interest Rates Apply to a Corporate Loan?

The interest rate conditions for a corporate loan depend on numerous factors. In addition to fundamental creditworthiness, factors such as company size, term, type of loan and use of collateral also play a role.

How Do You Obtain a Corporate Loan?

In principle, a corporate loan is granted by almost all financial institutions. However, your application must first be thoroughly reviewed before the lender can make a positive decision. In addition to your creditworthiness, your previous relationship with the bank also plays an important role. The subjective impression of the lender is a co-determining factor here. In addition to banks, you also have the option of obtaining a loan from digital providers such as the lending platform Teylor. Often faster and more flexible than traditional providers.

Why Does the Approval of a Corporate Loan from Banks Take Relatively Long?

Usually, the first point of contact when taking out a corporate loan is your house bank. But there, you need above all one thing: time.

If, for example, you want to make investments in rapidly changing markets or seize new market opportunities, the loan application process through to the disbursement of the loan can take considerable time. However, this depends on the individual case and how quickly the case officers work with the various internal departments.

If speed is required, you now also have a modern option: digital lending platforms like Teylor are considerably more straightforward and faster when arranging corporate loans.