In simple terms, borrowing money from a bank is simply the same as obtaining a loan. A loan is the sum of money that you borrow from the bank or lending financial institution in order to meet needs. These needs could result from planned or unplanned events, and by borrowing, you incur a debt that you have to pay within the agreed duration on your contract.
Borrowing money from a bank
Before you borrow money from a bank or a lending institution, you must agree on the terms and conditions presented by the lender. Depending on the loan, you may be required to offer an asset as collateral or not. The exact requirement would be outlined in the loan document, which you should read and understand properly before committing. Anyone can obtain a loan, from individuals to corporations and even the government. The exact reason why a loan is taken, however, varies.
Borrowing money from a bank simply means you applying for a loan, going through the vetting process, and receiving the loan. Also, keep in mind that loans come with interest rates, which is the compensation you pay to the lender for providing you with the sum. The rate is usually expressed as a percentage of the principal sum borrowed.
Defaulting on a loan means, you are unable to repay after its tenor, which attracts legal consequences. Most times, your collateral is sold or seized to compensate, while your lender could also impose penalty fees based on the contractual agreement.
If the lender feels there’s a high risk of not getting their money back from the borrower, they charge a higher interest rate than more secure loans. This is the case when most banks offer loans to startups.
How do I borrow money from a bank?
You can either borrow money based on personal/consumer use, or more as a business. Personal use involves you borrowing to cover expenses you’ve incurred or are intending to incur, while business lending is borrowing for investment. For example, getting a credit card to buy whatever you want when you want it is a type of personal loan. However, businesses can also obtain a business credit to purchase equipment and other business assets need for smooth functioning.
To borrow money from the bank, simply follow the laid down procedures. Different banks have their individual standards and application procedures to follow. It involves you taking a loan application form, filling it and supplying other necessary account or credit details, then submit. The bank takes its time to go through your credit rating and history to predict if you’d be able to pay and also check for any outstanding loans. Most times, a poor rating or outstanding loans could make them reject your request.
What are the things to consider before borrowing from a bank?
Before you go ahead to borrow from a bank, ensure you sit down to consider two major factors. Firstly, a good credit score and history show the bank you’re capable of making repayments on time. Your income also determines if you can borrow at all, as well as the maximum amount you can borrow. You’d be required to prove your earnings by providing your bank details and proof of employment. Lastly, your monthly expenses should be lower than the monthly loan obligation.