Our experts and asset managers will quickly and expertly advise you on issues of interest
However, the requirements and procedures for obtaining such a loan will differ.
From a financial point of view, an investment loan is one of the most attractive options for young companies.
History knows many companies that were able to expand their activities and acquire their current status largely thanks to the long-term financing received from the bank.
The international company ESFC offers long-term financing of large projects with an initiator's contribution of up to 10%.
We finance the following industries:
• Energy sector and renewable energy sources.
• Heavy industry and mechanical engineering.
• Chemical industry and processing of chemical waste.
• Infrastructure and transport, including seaports and terminals.
• Agriculture and food industry.
• Real estate and tourism.
The European financial services market offers a variety of solutions, such as investment loans for new companies.
Of course, in the case of newly established enterprises, the formal procedures and conditions of the loan may differ.
Contact the ESFC financial team to learn more about our offerings.
Business loans: classification and types
A highly competitive environment requires companies to make quick decisions, which is why business lending is experiencing rapid growth.Borrowed funds can be used by a business to pay for various operating expenses, investments in fixed assets, or the implementation of specific investment projects.
Table: Classification of business loans depending on the purpose.
| Loan type | Short description |
| Working capital loan | Working capital loans are intended to finance the company's operating activities. This includes the current needs of the business, such as the purchase of materials and goods, payments to contractors, operating costs, salaries and others. |
| Business investment loans for companies | Investment loans in a broad sense are intended for the development of fixed assets, in particular, for their reconstruction, modernization, expansion, acquisition and construction of new facilities. Providing an investment loan is associated with a high credit risk, as it is granted for a long period of time, during which fluctuations in market conditions and changes in legal regulations can occur. |
| Targeted loan for financing investment projects | A targeted loan for financing investment projects is the third type of loan, which has much in common with the previous type. It is issued exclusively for the agreed projects. |
Differences between the listed types of loans may include, among other things, the maturity of the loan, the method of providing funds, the level of credit risk, the type of collateral used, as well as the procedure for evaluating the borrower's creditworthiness.
What is an investment loan?
An investment loan is a bank loan for financing projects implemented by a borrower, the purpose of which is the construction, restoration and modernization of fixed assets, as well as the acquisition of intangible assets, the purchase of shares or long-term securities.Business investment loans are targeted financial products.
This means that an entrepreneur who receives an investment loan must use the money received in this way for the purposes agreed with the bank. This type of financing will always be directed to support a specific project.
The purposes for which an investment loan is taken for a period of up to 15 years or more must be clearly indicated by the entrepreneur when applying for a loan. You cannot first receive funds, and only then decide what exactly you will do with the money.
The condition for obtaining an investment loan for a business is a positive result of the financial analysis of the investment project carried out by the bank.
When providing investment loans, the bank often requires the initiator's own contribution, which reduces the risk for the bank.
To finance large projects, banks sometimes offer syndicated loans.
The loan amount can be transferred to the borrowing company immediately or can be provided in tranches. In the latter case, the receipt of each subsequent tranche usually depends on the fulfillment of the borrower's obligations under the previous phases.
Financing long-term projects
In many developing countries, long-term projects and business ideas are often funded with working capital.A business investment loan is fundamentally different from working capital financing.
Working capital is short-term in nature.
On the other hand, investment projects for large businesses are usually planned for up to 15-20 years and involve huge investments.
We are talking about a completely different burden of servicing credit instruments.
Working capital financing is short-term and is aimed at covering current needs and payments. It can also be used for certain contracts in order to increase market share or increase a company's turnover.
However, a working capital loan should not be used to finance investment projects as long-term business needs. For this purpose, there are investment loans with special conditions and long maturities. The logic of these financial instruments is significantly different.
An investment loan is used by a business mainly for the acquisition of fixed assets.
These are buildings, machinery or equipment that will increase the quantity and quality of the products and services offered. We can say that this is an investment.
Paying for raw materials to service the current contract is not an investment, so in this case the business must use working capital financing instruments.
An investment loan for a business can be supplemented or replaced by leasing. The idea is as follows: when we talk about buying machinery, equipment or other property with an investment loan, you will need additional collateral, different from the already acquired asset.
Practice shows that in most cases new companies cannot offer such collateral, and in this situation, one of the possible options is to use leasing to acquire the required asset. If you are going to buy expensive real estate or equipment, but the company cannot provide adequate collateral, you need to focus on leasing as the optimal tool. Business investment loan will require additional guarantees.
How to get a business investment loan?
Applying for a loan is the most difficult part of the whole process associated with obtaining a business investment loan.Why?
In the case of large loans with a long maturity, banks always use advanced tools, including the so-called credit scoring.
Credit scoring in investment lending is a complex system of algorithms and financial indicators used to evaluate the borrower's creditworthiness, as well as the risk of possible problems with debt repayment in the future.
An investment loan is always a business-specific tool. This means that a one-time check of the current financial health of the borrowing company and its financial history is not enough. Experts must carefully analyze the activities of the borrower in order to make the right decision.
Even the most attractive investment loan is always provided for a specific purpose.
Therefore, when applying for investment loans, an entrepreneur will have to prepare the following documents:
• Detailed, professional and sound business plan.
• Reports confirming the financial health of the company.
• Documents from the national court register.
• Statutory documents, etc.
The above requirements will apply to any business investment loan.
Possible goals of an investment loan
Based on the definition, investment loans can be used to purchase so-called fixed assets, intangible assets, shares and securities.
An investment loan is used for the following:
• Equipment used to conduct business.
• Real estate and land owned by the borrowing company.
• Any other assets for the production of goods or the provision of services.
Intangible assets, in turn, represent all types of patents, licenses or copyrights.
Since these assets can be bought from the copyright holder, an investment loan can be used for this purpose.
How about securities?
Thanks to the loan, you can buy shares of other companies or bonds. It is important to note that some banks provide businesses with the opportunity to take out one investment loan instead of another loan.
The concept of "investment" can be interpreted in different ways, and you can name a number of possible investment items.
Does this mean that an investment loan can really be used for anything?
This is usually not the case.
The decision to issue a loan is always taken by the bank.
This implies the following:
• The company must convince the financial institution that the investment is profitable.
• Financing of specific projects will allow the company to develop.
It is important to understand that an investment loan is not a form of subsidy.
The bank will provide financing to your company only if it sees benefits for itself in the project.
Thus, the ideal financing scheme should include a high quality and promising business plan.
Finally, your company must demonstrate financial success by growing dynamically and consistently. So the bank guarantees timely debt repayment.
It is critically important to convince the bank that the costs you are planning are of an investment nature and, in addition, will bring significant benefits to the company and its partners.
As a rule, banks do not have a “catalog” of possible options for using a business investment loan. This can be a loan for the purchase of real estate, equipment and a number of other expenses. The main thing is that the bank analyst considers them to be a wise investment of funds.
Investment loan conditions and interest rates
An important condition: to obtain business investment loan, an initial contribution of the borrowing company is almost always required.In this sense, an investment loan is similar to a mortgage loan, when the bank requires a part of the money in advance.
Some banks provide funds on simpler terms, but obtaining a business investment loan without an initial deposit is a difficult task. As a rule, business lending is associated with a very high risk for the bank. Taking even more risk by providing loans to an entrepreneur who cannot afford to pay 10-20% of the project cost is highly unlikely.
What is the interest rate and general financial conditions of an investment loan for a business?
In most cases, the cost of the loan will consist of the standard loan processing fee and interest.
It all depends on the conditions contained in a particular loan agreement.
Interest rates on investment loans vary widely. It depends on the economy, the situation in the host country, the industry and the specific project.
In the current market conditions, the issuance of investment loans entails a greater risk for banks than before. This means that the bank can, for example, offer a lower interest rate, but this will shorten the loan maturity.
What to look for when choosing a business investment loan?
A loan is a debt that an entrepreneur will pay off for years.For this reason, you should carefully study the terms of the loan. Apart from the interest rate (for example, EURIBOR and margin), experts highlight other elements that need to be checked.
Factors to consider when choosing an investment loan:
• Credit insurance.
• Loan application fee.
• Loan activation fee.
Some of these costs are fixed.
Banks usually offer different fees. For example, some institutions do not charge an application processing fee.
Bank margin is negotiable. Thus, the client can negotiate a lower cost of the loan. The amount of margin is calculated by banks by determining the credit risk and financial health of the company.
What else is important for the borrowing company:
• Terms of repayment of the investment loan.
• Time of consideration of the application after submission of documents.
• Loan collateral: whether collateral is required and in what form.
• Maximum amount of financing (usually 80-90% of the project cost).
• Prohibited clauses made in the contract contrary to the law.
• Possibility of early repayment of the loan and its consequences.
Summary
Below is a summary of the most important information about a business investment loan.Thanks to this section, you will quickly learn what a loan is, how to get it, and whether your company should choose another financial product:
• An investment loan is provided for a period of 1 to 20 years.
• Since this is a business loan, there may be an early repayment charge (ERC).
• The initial contribution of the borrower is usually between 10 and 20%, although there are investment loans that cover up to 100% of the project cost.
• The provided funds can be used for the development of the company in any way, including the purchase of fixed assets, intangible assets and others.
• The success of negotiations with banks largely depends on the current financial performance of the company and a well-written business plan.
• The method of repayment of the loan depends on the agreement with the bank.
The cost of an investment loan can vary widely.
Before taking out a loan, you should check other financial instruments such as leasing.
International financial company ESFC is ready to meet your business needs.
We help finance large projects in Europe and beyond by providing business investment loans on favorable terms.
