Business loans and credit cards have become massively popular in Russia, people who have never used credit products are becoming less and less. In addition to business loans and cards, there are other forms of lending: Installment plans and leasing. How do they differ from business loans and what is it?
The business loan or more correctly the business loan provides for the transfer of money or items from one person to another on the terms of repayment, with payment of the interest specified in the contract for the sole use of using them under a business name.
The main players in this market are microfinance organizations , and an offer to get a business loan can be found among individuals or legal entities. This form of financing is made under a business loan agreement.
It should be noted that physical persons among themselves can conclude a business loan agreement and orally. But this is allowed if the amount of the transaction does not exceed 10 times the minimum wage (the basic size of the minimum wage is 100 rubles).
For business loans offered by MFIs it is also typical:
- very high interest rates – 500-700% per annum;
- very short term of the contract – usually no more than a month;
- lack of collateral and guarantors;
- available for people with bad credit history.
Many consumers of financial services are very interested in the difference between a business loan and a business loan:
- the subject of a business loan agreement can be not only money, credit – only money;
- business loans can be issued only by a bank; MFO specializes in business loan processing;
- all business loan agreements are concluded in writing, while individuals among themselves can agree on a business loan and verbally;
- lending is governed by acts of the Central Bank and civil law, business loans are only the civil code.
In addition, it should be noted that the interest rate on business loans is much higher than bank interest, plus the term of the business loan agreement is significantly inferior to the business loan, as well as the available\ amount of financing.
But the attitude towards borrowers in the MFI is very loyal. Here, clients with damaged financial reputation can receive money. Such potential borrowers may not even apply to the bank, as they will be immediately refused.
Installment is a form of financing the purchase of a product or service, where payment is made not immediately in one sum, but in parts. Usually take advantage of the installment plan offered by bank managers to purchase household appliances, furniture, and car dealerships – wishing to become the owner of a new car.
Standard installment plan provides for participation in the transaction only two parties: the seller and the buyer. When a bank proposes to use installments, this means that it plays the role of an intermediary in the transaction, for which it will receive a commission. It’s just that the seller will pay it, and he certainly won’t work at a loss. The seller includes his expenses in the price of products, increasing its price. Therefore, it is more profitable to look for installment programs where the seller is the initiator of the transaction.
Also installment features are:
- lack of interest rate;
- short term nature.
Now consider the difference between installments from the business loan:
- installment is made between the seller and the buyer, the business loan – between the bank and the borrower;
- installment does not provide for an interest rate.
In addition, it should be noted that the installment plan has a short-term nature and rarely exceeds 3 years, the business loan can also be for up to 30 years. The installment is always a product or service, the business loan also provides only cash funding.
Leasing is a form of financing that has recently gained more and more popularity. It provides for the gradual payment of the value of the subject of purchase for a certain period. And as long as the client does not pay off all the debts, he will not be able to obtain ownership of the leased asset. This form of financing is very similar to long-term lease with option to purchase.
Most often in leasing you can buy cars and real estate. For consumer needs, it is not used. Provide leasing services to special leasing companies.
Now it remains to compare the difference between leasing and credit. These concepts are very similar to each other, as the first and the second provides for the interest rate, the long-term nature of the relationship, the initial payment.
The differences between them only in the moment of registration of the object in the property. If the business loan transaction real estate or transport becomes the property of the borrower after the signing of the business loan agreement and the transfer of money to the seller. Under the lease agreement, the debtor becomes the owner of the purchase item only after all the lease payments have been paid.
In this regard, there are a number of important tax issues that make this form of financing profitable. So, for example, while leasing is not paid for a car, an individual does not pay transport tax. This obligation falls on the lessor’s shoulders.
It should be noted that today leasing is more interesting for companies and enterprises than for individuals. Car leasing for individuals is not a popular alternative to car business loans, both among the public and among leasing companies.
Business loan, installment and leasing
The emergence on the market of new forms of lending, such as business loans, installment plans and leasing, creates healthy competition for bank business loans. After all, if a person cannot take money in a bank, he can use an installment plan, a business loan or arrange a lease.
Therefore, in order not to lose customers, bankers need to make certain concessions. And this, in turn, contributes to improving the quality of customer service, making credit conditions more attractive.