The basics of a business loan is very similar to that of other types of loans, which is the agreement struck between parties to lend a stipulated amount for a business where upon payment is returned with interest to the borrower over a fixed period of time.
These loans can be gotten from different sources of which banks are usually featured as the first choice as they generally do not own any part of the business and are just in the agreement to make money through the interest earned on the principal amount lent.
There are also equity investors, involving establishments or individuals who are willing to lend a sum of money in return for a vested interest in the business which usually comes in the form of shares in the said business.
The main differences between the two is that the former does not have any direct involvement in the business and only requires for the principal sum borrowed to be returned in full with interest paid over an agreed amount of time whereas the latter may sometimes incur the involvement of the lender and though no payment is required for the sum borrowed the lender now legally has a share in the business entity.
The promissory note is usually a document that is signed and witnessed in a legal setting whereby loan amounts, payment requirements, interest charged, time frames and any other agreed upon demands are clearly stated in the documentation.
The repayment of such promissory notes otherwise referred to as loans can be made in different methods which are also agreed upon at the onset of the process. These may include the following:
• Lump sum payments • Periodic interest and lump sum repayment of principal • Periodic payment of principal and interest • Amortized payments • Amortized payments with a balloon.