In the world of entrepreneurship, opportunities often open up through adequate financing. Many businesses fail due to improper financial planning. Given that equity, most of the time, proves insufficient to get the business going, turning to a financial institution often becomes an inspired solution if the process is managed correctly. The National Bank of Moldova, in partnership with the Independent Think Tank “Expert-Grup”, formulated a number of recommendations and provided information to help citizens orient themselves more easily in the financial environment and make decisions focused on the wellbeing of individuals and society, IPN reports.
According to the central bank, loan financing has several advantages, including the predictable repayment structure. Debt financing comes with a predetermined repayment schedule and allows businesses to plan their budgets for regular repayments. The lower interest rate is also mentioned. As a rule, banks offer a lower interest rate than Nonbank Lending Organizations (NLOs) and Savings and Loan Associations (SLAs). Businesses can also retain full ownership and control over their operations.
Loan financing also has certain disadvantages, such as repayment obligations or interest expenses. The loan also means the obligation to make regular repayments, which include the main part of the loan and interest. Late or nonpayment of obligations to the bank can lead to the accumulation of penalties and can affect the company’s credit score.
The NBM warns that some lending financing options may require collateral, such as real estate or equipment to guarantee the loan. This can put assets at risk of loss in case of a default on the loan. “Applying for a loan for a business, even a small one, can be a complex process, and the exact steps vary depending on the financial institution from which you want to raise the loan, the type of loan that is requested or the specific regulations.
To take out any loan, it is necessary to take a few steps. The applicant must assess the needs of the business. The amount of money the person needs and the purpose for which this money will be used in the business must be clearly identified. “Determine how quickly you will be able to repay the loan and what terms would suit you. It is important to distinguish the need for investment financing (equipment and machinery, buildings, working capital or materials needed to operate). In addition to the balance sheet and profitability calculation, one of the key documents that a financial institution carefully examines is the one regarding the flow of financial means or, rather, the collection and payment plan that you have in the business. Of course, it is also important to work out a business plan, which must clearly stipulate the concept of your business, the technical and economic calculations, the market analysis with the necessary records,” the NBM noted.
