A traditional bank loan includes a credit application and a conditional transfer of money from the bank to the borrower. Bank guarantees, on the other hand, have no direct money transfer.

Instead, banks issue guarantees as a guarantee for a third party on behalf of one of the bank’s customers. If the bank’s client does not fulfill a specific contractual obligation with the third party, that party can call the bank guarantee and receive the payment.

Traditional bank loan

One of the most important functions of banks is to accept money from people with an excess of available funds (savers) and to rent money to people with insufficient funds (borrowers). A traditional bank loan includes a lump-sum transfer of money to a borrower. The borrower promises to repay the loan with interest over a certain period.

Before a bank provides a loan, it examines the probability that the borrower will repay the money as stated in the note. Borrowers who are considered too risky can borrow smaller amounts, charge higher interest rates, pledge collateral or refuse the loan altogether. There are many different types of bank loans that are designed for different customers and purchases.

Bank guarantee

Bank guarantees act as a form of insurance for a third party that has a contractual relationship with one of the bank’s customers. This is best demonstrated with an example.

Suppose a private contractor negotiates a job with a municipal government to build a project. The government has never had to deal with this specific contractor before and is suspicious of the risk of working with a new entity.

The government can only accept the contractor’s offer on condition that the contractor receives a guarantee from his bank. The guarantee states that in the event of default by the contractor, the bank agrees to pay an amount to the government. In this case, the government is the beneficiary of the guarantee.

 The funding and funding instruments of the Federal Ministry for Economic Affairs and Energy and the ERP Special Fund are based on the first three development phases typical of innovative start-ups.

The Pre-Seed, Seed and Growth phases come from the vocabulary of venture capital financing and describe the development phases of start-ups.

Pre-seed describes the period before the foundation. In this phase, the founding team is formed. People interested in start-up get together or seek out fellow combatants to cover all the necessary skills. The business model is being developed. The product sketch is continued, possibly even up to the prototype. The founding team writes its business plan or business canvas, clarifies further financing and contacts potential investors. Pilot customers, sales and cooperation partners and employees who are necessary for further product development are acquired.

The capital requirement varies depending on the product. For research-based start-up projects, which are also associated with the production of a prototype, the financing requirements are comparatively high. Public support programs are available for the pre-seed phase.

Seed phase: The company is founded, further detail adjustments are ideally made in consultation with potential clients on the product. The business plan will be adjusted on an ongoing basis and, depending on the growth momentum, contacts with investors for the next round of financing will have to be established. Employees are hired. First steps are taken to launch the product on the market – nationally and possibly also internationally. Marketing and sales must be expanded.

In this phase costs for the establishment of the company and the related consulting services. Most importantly, further efforts are needed to further develop the product and promote marketing. In addition to public funding, business angels are available with capital and know-how. In addition, crowdfunding may be an option.

Growth phase: The company continues to expand its production and, above all, its distribution. Further employees are hired. Access to international markets is becoming increasingly important. Additional investors come on board. Sales are up, but profits are not usually made. In this development phase, however, the start-up should at least reach break-even.

The investment needs in this phase are concentrated on the expansion of sales and the further development of the products. The financing is provided by business angels or VC companies and can be flanked by public funding.

The designation of the phases is not “carved in stone”. Occasionally there is talk of Early Stage under which the seed phase and start-up phase are summarized. The growth phase can also be referred to as the expansion stage or growth phase. Each phase is different in duration and takes a few months to a few years, depending on the pace of development of the business.

The current account credit is one of the most widely used products in the field of commercial financing in Germany. Often very expensive – and many companies use it in such a way that costs are often too high.

What is the current account loan for?

The current account credit is often abbreviated as KK-Kredit and offers companies and traders a way to claim the business account in an agreed credit line. It resembles in its operation the disposition credit (colloquially known as Dispo) with private accounts: The bank, with which the account is led, permits the account holder to cover the account at short notice, for example, to be able to settle unplanned or out of the norm payments and To cushion liquidity bottlenecks. In addition, a credit line is agreed in which this granted overdraft moves.

For example, at the end of the month, employees’ salaries must be paid, but a customer’s payments for services rendered have not yet arrived on the company’s account. This gap can be bridged with a current account credit.

Use current account credit? Yes, but right!

A current account loan makes sense for companies, but should be used consciously and in the right way. Because: The KK loan is used for short-term bridging of liquidity peaks and is usually priced with a higher interest rate. Accordingly, this form of financing is too expensive for the company for medium-term or longer-term refinancing in use. If then the negotiated overdraft for the overdraft is overdrawn, without prior agreement, in most cases either automated redemptions or toleration by the financial provider will result in further high costs in the form of an overdraft commission.

Many companies use the current account credit incorrectly – and thus very costly.

The permanent use of the KK loan is expensive. However, those who use it in the short term, cushion only occurring peaks in the finances and repatriate in good time, benefit from a well-negotiated bank overdraft facility.

Of course, it makes sense in many cases, for the tips mentioned, to have a current account credit available. However, there are opportunities in modern corporate finance to relieve the current account credit and to refinance current assets as an alternative. The following alternatives help you to relieve the current account credit and thus operate more economically:

1. Working capital loans

The conditions for the current account credit can sometimes be very high due to the permanent availability. For entrepreneurs, it is advisable to keep an eye on current assets and the current financial situation in order to cushion any medium-term gaps in a timely manner and to avoid overdraft, if possible. The classic working capital loan offers this, whose interest rates are usually lower than for the overdraft facility .

Here it is recommended to choose a fast available loan as well as flexible lenders. Most times the times of high capital requirements are foreseeable, but not always perfectly plannable. Even if, as an entrepreneur, through experience and market knowledge, you realize at an early stage that a bottleneck will soon be created, the time to prepare is limited. Appointment with the bank advisor, presentation of the situation, receipt of the offer of the bank, acceptance and payment – this takes valuable time. If it is too late then the company has to use the often more expensive current account credit. Digitally applicable corporate financing such as Digital MittelstandScredit can provide an optimal solution here: Fast liquidity for companies, easy to apply for and credit approval is possible within 24 hours.

2. Finetrading

Finetrading is an alternative form of financing in which the purchase of goods and materials by a financial service provider is pre-financed for the company. A purchase financing offers many advantages for the company, the principle is simple:

The entrepreneur agrees with a finetrader the conditions of the purchase of goods and then ordered, as usual, at his suppliers the required goods and resources. The invoice is settled immediately by the finetrader so that the supplier receives his money immediately. The entrepreneur only pays the open sum directly to the financial service provider after an agreed payment date, for example after 3 months, if the company was already able to exploit the goods themselves and generate revenue. With immediate payment, companies can not only benefit from discounts and discounts of suppliers, but also protect the overdraft facility, which is often used to finance short-term product purchases.

3. Factoring

The granting of long payment terms, for example up to 3 months after delivery of goods, are part of the everyday life of many companies – and can endanger liquidity. Factoring is a form of financing in which a financial provider, the factor, buys the receivables of customers and settles them immediately. If necessary, the factor also assumes the default risk and receivables management of the receivables and thus relieves the company’s own bookkeeping and risk provisioning.

The company may continue to grant the customer an extended payment term, but has the funds directly available. Access to the current account to cover other costs or to accept further orders is avoided.

4. Guarantees and guarantees

More and more customers of craftsmen, builders or manufacturers demand guarantees for the service rendered or to be rendered. This may, for example, relate to warranty or contract fulfillment obligations. If there is damage to the manufactured good or can not be completed or delayed due to problems of the order, costs are incurred by the company.

If, for example, a damage or a failure leads to a warranty claim, it is usually necessary to react quickly. The current account credit is then usually the only solution – and that can be correspondingly expensive. A guarantee loan , previously concluded with appropriate foresight, is usually cheaper in case of damage and the working capital is spared.

5. Warehouse financing

A warehouse with goods that are held for sale or production is normal for many entrepreneurs, for example, to handle spontaneous orders and serve anyway. However, a warehouse also binds liquidity that could be better used elsewhere. Anyone who avoids a filled warehouse as an entrepreneur runs the risk of having to buy goods quickly when orders are high – the only way is usually overdraft credit.

Warehouse financing , a special financing , can save costs or provide additional budgets for more flexible goods purchases (for example, NOS projects). Here, interested companies should seek advice, as it is a special topic in financing circles.

Find the optimal financing now

Now find the optimal alternative to current account credit or compare the terms of your existing loan with the current situation on the market – and this on the basis of real offers from financial service providers:

 Grants, loans, guarantees, participations and know-how: The BMWi supports tech and life science start-ups to turn promising ideas into successful companies.

In Germany, there is an extensive and well-funded range of financing instruments that are closely geared to the needs of innovative start-ups. The Federal Ministry for Economic Affairs and Energy (BMWi), the ERP special funds managed by the BMWi, the provinces and their guarantor banks, private investors such as business angels and venture capital companies support start-ups in all entrepreneurial development phases.

Start-ups: innovative and fast-growing

The Federal Association of German Startups e. V. defines startups as companies that

• younger than ten years are and
• with their technology and / or their business model are (highly) innovative and / or
• show or aim for significant employee and / or sales growth.

The term “start-up” can be applied intersectorally to all founders. Start-ups show their economic significance primarily as job drivers: According to analyzes by KfW Bankengruppe, all start-up companies that are not older than one year employ an average of 0.8 people. For start-ups, there are already 3.5 on average in the comparable period, the Startup Monitor 2016 states. At the same time, today’s start-ups are tomorrow’s hidden champions: medium-sized companies that are leading the way with their innovative products and services on international markets.

Financing secures startup and growth

Start-ups need suitable and reliable financing for start-ups, growth and internationalization. The Federal Ministry for Economic Affairs and Energy therefore provides special financing instruments for innovative and technology-oriented founders, in addition to the proven subsidy loans and guarantees – as a substitute for bank-standard collateral. The reason for this lies not least in the fact that the “classic” start-up promotion via bank loans plays a rather subordinate role for start-ups – especially in the pre-seed and seed phase. This is understandable insofar as banks and savings banks are often difficult to assess innovative business models and their market potential due to their technical novelty.

In addition, there is the usually high capital requirement with usually missing collateral. And last but not least, it may take up to several years for the technology or LifeScience-based spin-offs from universities and research institutes to make the necessary market development possible before the product or process has the necessary marketability and the company can be in the black.

The Federal Ministry of Economics and Technology therefore supports innovative start-ups with tailor-made funding instruments and thus supports them

• the preparation of business plans
• additional research and development to adapt the product or service to the market
• the development to maturity
• Investments in the technical equipment of the company to realize the market entry
• Marketing and sales development
• the international market entry

If your car payments are higher or if you are ready to buy another car, you may feel it is time to end your current car loan. One of the most common barriers to doing this is negative capital, which means you have to pay more for a car than it is worth, for example, if the value of your car is offset by damages. This article will help you evaluate the condition of your loan and choose an option to end your car loan that is right for you.

steps

 1 Determine the market value of your car.

Since the biggest and most common obstacle to a car loan is negative capital, the best thing you can do is to determine whether you have negative capital or not. For this you need to find out how much your vehicle is worth. For a quick estimate of the value of your car, use any online price service such as Kelley Blue Book or NADA used car guides. On these free sites you can quickly and easily find an estimate based on the brand, model and condition of your car.

You can also search for classified ads and visit used car franchises to find out the price of your car (or similar vehicles).

To get a more accurate value from your car, find out what your vehicle’s mileage is, as well as other optional features (automatic windows, solar work, etc.) that you have equipped. Generally, if you have high mileage, your price is lower, while optional features can slightly increase the value of your car.

2 If your loan is not down market, sell your car.

Depending on how many payments you have already made for your car and how much its value varies, it may be more than the amount you still have to pay for the loan. In this case, what you can do is sell your car and use the profits to pay off the rest of your loan. You will no longer have debt, your credit will be uninfected and you will be able to buy a new car without any problems.

Contact your lender before selling your car. You will close your loan with your lender, so it’s important to keep it up to date. Your borrower can give you specific indications to close your loan. You may have to make the sale of the car in the loan institution so that you can immediately use the money from the sale to cancel the loan.

3 If the loan is for installments, prioritize.

Maybe you can’t sell your car, you can’t pay your loan in full. In this case you have several options, but you will have to decide what is most important to you. For example, if you want to end your car loan to reduce your monthly expenses, you may need to make a single advance payment to cover the remaining loan balance after selling your car. If you just want a new car, you might need to reach an agreement on how much money you will spend, pay more for more time. Neither of the following steps will make you complete your car loan. You won’t buy a new car either. It won’t cost you anything. It won’t let your credit history (it will allow you to meet some of the statements), but not all).

4 Refinances.

Refinancing means establishing a new loan contract with your borrower. It is also known as “debt restructuring”. If you’re going through financial hardship, it’s best to refinance your loan, rather than to stop paying. If your car loan inflates your monthly expenses, consider refinancing it, that is, you will still have to repay your loan, but with a new one you will have better facilities. Contact your borrower to negotiate the refinancing of your loan, try to lower the interest rate or lower your monthly installments on the new loan to an amount that you can comfortably afford. If this new loan makes a big difference in the stability of your economy, it will benefit you in the long run.

A good credit score will give you better opportunities to get a new loan. If you can, try to save money, pay off debt, etc. for a good time, because that way you can improve your credit score.

If you’re going to refinance, your borrower will “investigate” your credit history to decide if you’re approved. This research may have a negative impact on your credit rating, but it usually disappears in a few months, though the research will be visible on your credit report for two years.

5 Transfer your loan.

Depending on your bank’s regulations, you may be able to transfer your loan to someone you trust and let them accept your payments. It is a good choice if you want to sell a car that is not completely canceled for a friend, so you accept the payments. But you have to be careful and don’t just trust that the new owner will send you the money every month or you will pay the borrower on your behalf. If the new owner of the vehicle is not directly liable for payments, you will remain liable if he or she stops paying.

A good option is to approve the new owner for the amount of the purchase price of the vehicle. Then that person pays you the money you use to cancel your loan in a single payment (you may need more money if you are loan repayment). After you cancel your loan, you are free of all responsibility and the new owner is responsible for monthly payments.

Don’t forget that the new owner should also take responsibility for vehicle insurance.

6 Rent a new car.

If you are absolutely desperate to get a new car, but you can’t get the money, consider renting rather than buying. Talk to your borrower to change your negative capital balance for hiring a new car. Since a rent is significantly lower in payments than the self-financing loans, you can drive a new car and lower your monthly installments. If you make your payments monthly and complete the entire rental period, you will also have paid the installment installment loan. The downside is that you will be the owner of the new car, you will have to buy it back and buy it at a residual value or rent a new car.

Renting a new car has several advantages and disadvantages. The positive part is that your initial expenses will be lower due to the low monthly installments. In addition, you probably don’t have to deal with maintenance costs, depending on the lease agreement. Eventually you can drive such a new car every time. However, the cost of rented car insurance is higher than normal. In addition, you may be paid for excessive mileage or normally due to the use of your car. Most rentals include mileage payments of 10-15,000 miles a year. If you exceed that number, you can pay between 10 and 25 cents per additional mile.

Finally, the car is not really yours. If you tend to keep cars or work with them, you may not want to rent them.

7 Get Out

If there is nothing else you can do, that is, if you do not want to refinance a loan, you cannot sell your car to pay your debt and you are under too much financial strain on your loan to pay. Unfortunately you can lose your car. Tell your borrower that you cannot continue to pay the loan and that you will opt for a voluntary attachment. You will lose your car and your credit history will be exceeded, but when you volunteer your car, you will avoid being responsible for the cost of repairing the car by the agency in question.

The borrower will take possession of the car, sell it, and if the money from the sale does not cover the entire loan, it will request the remaining balance. If you do not pay the balance, a sentence will be issued against you for the amount you owe. Pay the balance, as the borrower can deliver a “debt cancellation” letter, which you can offer to future borrowers as proof that you have returned what was loaned to you.

An embargo, whether voluntary or not, will have a negative impact on your credit history for many years. It will therefore be more difficult to obtain other loans in the future and loans that you will be less favorable (in terms of interest rates, advances, etc.). If you can avoid paying off your loan, do so.

8 Cancel the loan.

Generally speaking, the best way to end a loan is simply to cancel it. In the long run, this is always the simplest and most economical option. If you have cash available, contact your lender immediately as you will be happy to negotiate a range of higher monthly payments or even a one-time payment transaction that allows you to pay the rest of the loan. It is a good idea if you have enough cash in your bank account and you want to reduce your monthly expenses, as if you just moved to a big city and plan to use the public service instead of your car.

As a general rule, pay your loans as soon as possible, a good idea, because you avoid the interests that can accumulate tremendously while the loan lasts. If you don’t have the cash, consider saving months or even years to get the money and therefore completely cancel the car debt. No one is angry to live without guilt.

tips

• If you choose to sell the car to get out of debt, try to sell it on your own. In general, it is better to sell it to a private group than to reach a seller or sell to a seller.

warnings

• Keep in mind that all of these options that will help you complete a car loan will have a negative impact on your credit. If the most important thing for you is to keep a good credit or to fix bad credit, consider staying with the car until you can get rid of the loan, in a way that is not harmful to your credit history no.