Business loans are tricky creatures. Not only can obtaining one be difficult, but actually understanding them can be even more confusing. All in all, it can be quite a process. There are many different elements within loans that can make them difficult to fully understand. Two terms we will spend time giving extra definition are “principal” and “interest.”
The principal represents the total amount of money you borrowed for the loan. This portion of the loan only changes in amount as you pay it down. The interest is essentially the fee you are charged for borrowing money from the lender. This is the agreed-upon percentage you pay on the total amount you still owe. The amount of money owed on interest increases based on what you still owe on the principal.
The amounts outstanding on principal and interest are kept separate within the total loan balance. The interest applies only to the balance yet to be paid on the principal, not the cumulative amount owed on principal AND interest. By putting extra money towards what the principal, you can ultimately reduce the amount of time and money you spend repaying the loan.
Among the many types of loans it’s possible to obtain, each structures repayment a little differently. For some, your minimum payment goes directly towards reducing the principal, with interest being paid later. Others, your payment is spread equally between paying down principal and interest. Balloon loans are structured for interest-only payments for the life of the loan, with the full balance of the principal due at the end. There’s almost endless variety when it comes to how lenders choose to form loan repayment.
While business loans can be difficult to understand and even harder to actually obtain, Alliance Commercial Credit Group aims to help take the pain out of the process for you. When you work with us, you know we are looking out for your best interest. We’re experts at assessing a business’ financial situation, and helping them find the right financing solutions.