Bank loans
 

What is a bank loan?

The bank loan is a deal between the bank and the borrower. The bank is obliged to extend to the borrower a monetary amount for a specific purpose and under agreed terms and conditions and the borrower is obliged to use the funds in accordance with the agreement and to repay this amount upon expiry of the term of the loan. Bank loan agreements are signed in writing and the borrower pays an interest rate on each loan as agreed to with the bank (art. 430, para 1 of the Commerce Act).

 

Types of loans

The types of loans may be classified depending on:

  • Their purpose;
  • The repayment term;
  • The level of collateralisation – secured, partially secured or unsecured;
  • The mode of utilisation and repayment.

Most banks in our country publish structured information regarding the different types of business loans depending on the purpose they are extended for.

According to their purpose the loans provided to Small and medium-sized enterprises (SME) fall into two major categories:

Investment loans Investment loans

Investment loans are available for the acquisition of assets. This includes the purchase or repair of machines, equipment and furnishing, or the so-called tangible assets. Investment loans may also be used to finance the purchase of software, management systems, to patent a specific idea or service, and these are the so-called loans for intangible assets. Investment loans are extended for a repayment period between one and five or more years. The creditors require collateral on investment loans to ensure that the loan will be repaid regardless of the financial welfare of the company in the future.

In most cases mortgage or pledge over the tangible or financial assets subject to the transaction is used as collateral.

Working capital loans Working capital loans

If you need funds to cover current business needs such as salaries to the employees, purchase of goods, materials, consumables, etc., you may take advantage of the various types of working capital loans. Most banks in our country offer the following working capital loan options:

  • Standard loans;
  • Credit lines;
  • Credit lines for traders with POS terminals;
  • Overdraft;
  • Revolving / renewable loan;
  • Agriculture loans against subsidies;
  • Loans with preapproved repayment schedule.

 

How is the interest rate on the loan determined?

Each bank has a methodology for the calculation of the interest rate on the different types of loans. Interest rates on the various types of loans are usually formed based on two major indicators:

  • Reference interest rate – a value determined independently from the creditor bank. Each bank maintains current information on the international and national interest rate indexes which it uses to determine the interest rate (for example, EURIBOR, LIBOR, etc.)
  • Agreed interest add-on which takes into account the risk that the bank undertakes when extending the loan

This may be simple or compound interest calculated as interest rate over the repayment period of the loan.

The interest rate on the loan also depends on your credit history and the market situation as at the time the transaction is closed. Information regarding the terms and conditions on loans is available on the website of the bank of your preference. More details regarding the market situation concerning interest rates are available here.

 

Important to know
Important to know

To obtain information regarding the financial instruments that charge preferential interest rates on business loans to SME’s, please, visit the section National Funding Programmes or European Funding Programmes .

 

Fees charged on the loan

In addition to the various interest rates that each bank sets, financial institutions also charge certain fees related to loans disbursement, such as:

  • Fee for application, analysis and assessment of the credit worthiness;
  • Fee for the opening, servicing and closing of an account under the loan;
  • Loan utilisation fee;
  • Fee for fixed conditions when you would not like to utilise the loan immediately after its approval;
  • Insurance premium;
  • Fee, if you would like to renegotiate the terms and conditions of the loan;
  • Fee for review of the renegotiation;
  • Loan restructuring fee;
  • Penalty interest in case of overdue payment;
  • Early loan repayment fee;
  • Fees for the additional services banks offer (e.g., SMS messaging, credit or debit cards).

The interest and all fees due on the loan determine the real cost of the loan that you will get and repay.

 

Important to know
Знак Важно е да знаете

Each bank is obliged to state all fees due on the loan in the Standard European Loan Form (art. 5, para 2 of the Consumer Credit Act). This document makes it easy to compare the terms and conditions offered by the different banks.

 

For more information
Повече информация

For more information on bank loans and the related regulatory framework is available on the website of:

 

Related documents
 
 
Write to us
Ministry of Economy
8, Slavyanska Str., Sofia 1052, Bulgaria
BULSTAT: BG176789453
phone: +359 2 940 7001

fax: +359 2 987 2190
 
Operational Programme This item is available only in Bulgarian
Contacts: 8, Slavyanska Str. Sofia 1000, Bulgaria tel: +359 2 940 7001 e-mail: e-docs@mi.government.bg
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