FAQQuestions/Answers
Here you will find answers to most of the essential questions you may have regarding the preparation of your credit application or the choice of the type of credit you may need.
Are you looking to use a professional loan or investment credit to create your business or finance the development or takeover of a project that has already been launched? Here’s what you need to know to put all the chances on your side.
Generally requested from a banking institution, a professional loan consists of asking a bank to finance all or part of the funds needed to create or develop your business. This financing acts as support to start or boost your entrepreneurial project.
This professional credit can be tangible (cars, equipment), intangible (working capital requirement, acquisition of shares) or even real estate (warehouse, offices). However, obtaining a business credit requires meeting several conditions that can vary from one bank to another.
In fact, when you submit your professional loan application, the bank will analyze and calculate different indicators in order to issue an opinion on your financing. The conditions retained by lenders to grant you professional financing include, among others
A company can borrow a loan for a repayment period calculated according to its repayment capacity, the offer subscribed (repayable loan, lease, etc.) and the nature of the project to be financed. Often, a professional loan lasts a maximum of 15 years, particularly for the most expensive investments. Our experts will detail the conditions regarding the duration of this financing solution.
What are the minimum and maximum durations of the professional loan?
Banks have several financing offers whose contracts can be spread over the short, medium and long term. Depending on the cost of the company’s project and its financial situation, a bank will offer a consumer loan, if the amount of the requested financing is less than €75,000, or a real estate loan if this threshold is exceeded.
For the purchase of real estate and commercial premises (premises, storage building, production plant, etc.), the duration of this professional real estate loan will be at most 15 to 20 years.
Generally, the acquisition of a business cannot be financed by a consumer loan with a term of more than 7 years. The loan for the purchase of software and intangible resources is on average between 2 and 3 years, while a professional loan to purchase a vehicle (commercial car, truck, utility vehicle, motorcycle, etc.) often has a term of between 3 and 5 years.
Using factoring, a company can also obtain funds prematurely from its customers’ invoices awaiting payment, which allows it to relieve its cash flow. This credit offer is classified in the short-term financing category. The repayment period is very short because it is between a few days and a few months only, which is the time required for the company’s customers to pay the amounts due.
As for leasing offers aimed at professionals, the duration of a contract is 3 to 7 years for the rental of a tangible good and a little over 15 years for the rental of a real estate property.
The repayment period of a professional loan depends on the project
The duration to repay a loan for professionals varies depending on the type of project of the company, which the bank agrees to finance, and its debt ratio.
All these investments require capital that can range from a few thousand to several million euros. The duration that the lending institution will submit will therefore take into account the amount borrowed, but also the amount of a personal contribution.
In summary, loans intended for companies and managers are requested to successfully realize a large number of needs. The total amount of the investment has a certain impact on the repayment period. For example, these projects can be:
to create an activity or buy a business;
to develop the growth of a young or mature company;
to quickly obtain cash to ensure the payment of its monthly payments and its expenses for the completion of its operating cycle;
to finance the purchase of material goods;
to purchase commercial premises;
to make rental investments (housing, professional premises, etc.), etc.
The professional loan is a rite of passage for most professional borrowers seeking financing in the exercise of their activity (creation, investment, development, etc.).
However, most banks require the presence of guarantees to finalize any professional credit application.
Why do they do it? What types of guarantees? Some answers.
Professional credit: why do banks ask for a guarantee?
Generally, a guarantee is requested by the lending institution to protect itself from the risk of non-repayment of the company’s debts.
Guarantees can cover part or all of the amount borrowed. Thus, they are an additional security in the event of the company failing in its commitment, if the latter goes bankrupt and finds itself unable to honor all of the deadlines.
The presence of guarantees for the subscription of an investment credit greatly facilitates access to it. Naturally, the greater the risk accepted by the lender, the greater the number of guarantees required will also be.
However, it is not possible to know in advance what guarantees will be required by the bank.
The integration of additional securities will result from a complete analysis of the company and its activity.
Thus, the guarantees required may vary from one company to another depending on several criteria: the risk, the field of activity, the amount of the investment, the presence of a personal contribution, the business plan or even the current and forecast turnover.
What are the types of guarantees for a professional loan?
Whether for the creation of a company, a project to take over an activity or a business, the purchase of equipment or the acquisition of premises with the acquisition of real estate, financing via a bank loan is surely the most popular method for professionals.
However, access to credit remains mainly conditioned by the presence of guarantees. Depending on the company’s balance sheet and the nature of the project to be financed, certain securities will be required.
Specifically, when a professional wishes to take out a loan as part of their activity, the granting of their financing will mainly be conditioned by the presence of additional securities.
Here are the different types of guarantees that may be required by the bank:
Insuring your professional loan
Although there is no obligation on this subject, the lender will request in the majority of cases that professional loan insurance be taken out.
Insuring your loan protects both the creditor and the company. Indeed, in the event of a financial failure on the part of the company, the insurer will, under certain conditions, take charge of reimbursing the balance due.
In addition to minimizing the risks of a default, the bank is assured of recovering its borrowed liquidity if a loss covered by the contract occurs.
Please note: taking out credit insurance involves a cost, which varies depending on the amount borrowed, the health of the manager, the risk and the situation of the company.
Including a guarantee for your professional credit
As a reminder, when a guarantee is put in place, a guarantor is determined. He will be responsible for repaying the loan in the event of the company’s failure.
In fact, the legal or natural person (a partner for example) designated will have to pay the unpaid installments or even future monthly payments until the full repayment of the outstanding capital.
It is necessary to differentiate between two types of guarantee: the personal guarantee and the joint and several guarantee
The first is the head of the company who acts as guarantor in the event of the company’s default. Once the default is noted, the creditor can take steps with the manager to obtain reimbursement of the balance owed.
However, before the personal guarantee takes effect, it is possible to establish a dialogue with the bank in order to agree in particular on the sale of certain assets of the company to avoid the manager being responsible for repaying the creditor.
The second is the joint and several guarantee. Usually, a surety organization is contacted when subscribing to this type of guarantee.
If your company finds itself unable to repay its monthly payments, the surety company will take over and will take care of paying the amounts due on your behalf.
However, using this type of guarantee entails additional costs (payment into a mutual fund and commission). The surety company will then establish a repayment plan so that you return the amounts it has paid to the bank.
Mortgaging a property for
guarantee your professional loan
The way it works is as follows: once a property has been mortgaged, it will be the company’s guarantee from that moment on. Simply, if it defaults on payment, the mortgaged property will be seized by the bank, which will become its new owner. From then on, it will put the property in question up for sale in order to recover the amounts committed.
Please note: mortgaging a property and selling it generate additional costs that you will have to pay.
Making a pledge during a professional loan
The pledge works in the same way as the mortgage, with a few differences. The main one is that the mortgage must be on a tangible asset, while the pledge must be on a so-called intangible asset. Often the pledge takes place on shares, company shares, a business fund or life insurance.
On the same principle, in the event of non-payment, the creditor can seize the various assets pledged by the entrepreneur and then sell them to recover the amounts borrowed.
Add a counter-guarantee for a professional loan application
A counter-guarantee is used when the current guarantees are not sufficient to validate the granting of your professional credit. In this case, the presence of counter-guarantees may be requested in order to complete your borrowing process. By paying additional interest to specific organizations (e.g. Bpi France), they agree to cover 40 to 70% of the amount borrowed.
Thanks to this method, you benefit from an additional guarantee that can facilitate access to bank credit. As for the bank, it will be more reassured because part of the financial risk is covered by another organization.
Arc Invest Credit is a credit institution whose mission is to work primarily with businesses
that support environmental preservation and promote equity in our
communities.
Arc Invest Credit also provides a variety of free services to the public, even if you are
not a borrower with us, such as business counseling, personal credit assistance,
workforce development, and sector expertise in specific industries (including
agriculture, fisheries, aquaculture, renewable energy, and childcare) to help you strengthen or grow your business.
Nor is there anyone who loves or pursues or desires to obtain pain of itself, because it is pain, but occasionally cumstances occur in which toil and pain can procure.
Yes! Arc Invest Crédit’s StartSmart program offers one-on-one business advice to immigrants, refugees and asylum seekers and all our business advisors and lenders will work with speakers of any language. For loans, a work permit is generally required.
Upon request, we will provide an interpreter for in-person or zoom meetings at no additional cost. Please let us know when you first contact us if we can provide such services.
Arc Invest Credit provides business loans and micro-credits to eligible borrowers.
Micro-credits are available for a maximum amount of 100,000 USD/EURO for new and existing businesses. Business loans are available for a maximum amount of ten million USD/EURO for existing businesses.
