What is an Investment Loan?

What is an Investment Loan

An investor loan is a certain way of borrowing money, which allows entrepreneurs, as well as owners of large, medium and small businesses, to improve their production process and develop their business. The purpose of this loan is to help develop the business of a particular client.

The latter may be:

  1. The owner, that is, the citizen;
  2. The enterprise, that is, a legal entity;
  3. Individual entrepreneur.

Such a loan is given on the basis of an agreement. The parties to this document are:

  • Investor – that is, the person who invests money (gives a loan) in the development of a business, in pursuit of the goal of enrichment. He only invests his savings;
  • The client of the investment – that is, this is the person who is responsible for the correct placement of investments in a particular business project;
  • The contractor is the party that realizes the investment.

That is, an investment loan agreement is a tripartite agreement on the invest-ment of funds and the receipt of a certain amount of profit.

As a rule, the objects of this type of borrowing are:

  • construction projects;
  • manufacturing enterprises;
  • equipment, machines and units.

Not a single investor will invest his funds in the development of any project. A clear business plan is required. The responsibility for its preparation “falls on the shoulders” of the contractor.

In addition, confirmation of his current financial condition is required. As an alternative to secure a loan, you can offer to issue a mortgage on property or business.

Borrower requirements

To get a certain amount for business development, you must meet certain requirements:

  • The plan for the rational use of invested funds should be described in sufficient detail;
  • A business plan for the further development of the business should also be drawn up and presented for review to a potential investor;
  • The utilization project must be realistic, not fantastical – few investors will allocate funds for coal mining on the moon. You must have a stable financial position supported by documents and preferably additional collateral for the loan;
  • If the borrower is a partner in any business, then the partner will be treated in the same way as the client himself;
  • If the applicant has a good credit history, this will be an additional plus when applying.

Where can you apply for an investment loan?

You can get an investment loan from:

  • state programs for subsidizing and concessional lending to small and medium-sized businesses. Big business practically cannot count on state aid. Therefore, it has to attract private investors. But in order to get help from the state for the development of your business, you must meet rather stringent requirements;
  • a bank – many credit institutions have developed special lending programs for the development and maintenance of the business. But, to get such a loan, it is necessary to collect a lot of documents that confirm the client’s solvency. You also need to develop a plan for the use of borrowed funds and a business plan. Banks prefer to work with companies with a stable financial position;
  • an investment company – in the USA, there is a practice when people who have surplus funds unite in companies for further investment of these funds. The main goal of such companies is an investment for profit. But in order to receive such assistance, you need to collect an impressive package of documents, and you also need to meet the requirements. The employees of such a company thoroughly check each applicant and choose the most promising one. Being selected in such a company is tantamount to winning the competition;
  • any organization that is interested in the development of a specific business project, the requirements are individual for each specific applicant;
  • a private investor – many citizens who have extra money invest it in the development of a business or project. They don’t have to be professional investors. You can also look for funds from close acquaintances, friends and relatives. The main condition is to draw up the contract correctly.

Features of lending

Like any other type of borrowing, an investment loan has its own specific features. These include:

  • the conclusion of the contract takes place only on the basis of documents;
  • this stage is preceded by the application for a loan;
  • as a rule, such a loan is issued against the security of existing property, real estate or business.

To conclude a contract correctly, the applicant must present the following documents:

  • All constituent documentation permitting the conduct of one or another activity;
  • Copies of the passports of the head of the legal entity and the chief accountant, as well as the order on the appointment of this head to this position;
  • Certificate of state registration of this enterprise, accounting and financial reporting;
  • Documents confirming the right of ownership of the pledged item.

Existing species

You should understand that an investment loan is a specific loan product that can be divided into several types:

  • Project, that is, a certain amount of money is issued for the implementation of a specific project. It can be either a completely new project or an existing one, but with a good plan for further implementation;
  • Expansion investment in an already running business. That is, there is a certain enterprise that is quite successful in the market. But, the owner of the business decided to expand, he has opportunities for this (except financial), he has a business plan and other documents ready. Another option is to open a branch in another location;
  • Construction is an investment in the construction of real estate, both residential and commercial. But such a loan will have no legal effect without a building permit.

For entrepreneurs

Entrepreneurs are full-fledged participants in economic and business activities. But no one is in a hurry to give them loans, especially investment loans. Therefore, borrowing for them has a number of certain nuances:

  • Entrepreneurs are always checked more thoroughly – and you need to prove not only your stable financial position but also pass the creditor’s check on technical indicators;
  • As a rule, they are checked for an annual period – sometimes for 2 years, and a legal entity – for a quarterly or semi-annual period;
  • The income of individual entrepreneurs – it must be so high that they can repay the loan and leave funds for further development;
  • A novice entrepreneur has practically no chance of obtaining such a loan since he has no results from his activities.

Forms of implementation

An investment loan, like any other type of investment, must be properly implemented in order to further obtain maximum profit.

The following forms of implementation are provided:

  • Urgent lending – that is, the applicant has the opportunity to receive a certain amount of money at a time for a certain period. With this method of implementation, the interest rate remains at a fixed level throughout the entire borrowing period. The debt can also be repaid at the end of the term, or annuity, that is, in equal parts at regular intervals. The debt must be paid along with the interest prescribed in the contract;
  • Open credit line – that is, the borrower has some expenses for the implementation of a project. He borrows these funds freely but within a specific period and monetary limit. That is, you need to apply once for a certain loan amount for a certain period, and wait for its approval. And then choose from this amount in parts during the period specified in the contract.

Cons of an investment loan

Any legal transaction has its drawbacks. Cons of an investment loan include:

  • It is quite difficult to obtain such a loan for investment shares – you must not only meet rather stringent requirements but also collect an impressive package of documents;
  • The business reputation of a potential applicant is very important – he must have an impeccable credit history. Nuance! Those enterprises who have never taken out loans at all and who have no credit history are almost not trusted by investors;
  • Even with a detailed business plan and a project for further business development, investment is always a risk. Therefore, investors (especially private ones) can charge high interest rates;
  • It is almost impossible to get such a loan for an individual entrepreneur; it is checked even more strongly than enterprises, and the requirements for it are even tougher.

Often, investors issue a targeted investment loan for a business, for example, they believe that it is more profitable to invest their funds in the reorganization of production facilities. They will tightly control the use of funds for this very purpose.

Category: Online Loans

Tags: funding issue, investor loan, loans