What is a Loan?

We recently realised that some of the basic questions need to be answered for some of us, so let us take a step back: what is a loan?

A loan is a sum of money advanced to a business that must be repaid, with interest at some point in the future. The lender must bear the risk that the borrower may not repay the loan. The interest rate charged is the price for that risk. It also is money, classified as debt, for temporary use.

A business has to apply for a loan through a lending organization. A lending organization might be a commercial bank, credit union, or other lending organizations.

The loan application is different from every lending organization but it has common elements. The lending organization usually wants to know the background of the owner or owners of the business and the financial condition of the owner or owners, and the business, before giving the business a loan.

A loan is made to a small business for many reasons. The loan may be for working capital and purchases of equipment or buildings and land. Interest rates on a loan depend on a variety of factors. Businesses have to be creditworthy in order to be granted a loan.

Where to get a loan

Loans can be obtained from banks or Sacco’s that offers loans with low interest rates and fees. A person looking for a loan should always remember to look for a loan with the lowest annual percentage rate. Banks and SACCOS are the safest and most affordable places to get loans. In order to get a loan from a SACCO, one must have been a member for a certain period of time and must have saved a certain amount of money. Those in need of small loans and don’t have any form of security can get loans from a micro lenders.

Micro lending is the extension of very small loans (micro loans) to impoverished borrowers who typically lack security, steady employment and a verifiable credit history. It is designed not only to support entrepreneurship and alleviate poverty, but also in many cases to empower women and uplift entire communities by extension. In many communities worldwide, in developed and developing nations alike, women lack the highly stable employment histories that traditional lenders tend to require when giving off loans.