Lending is the provision of money by a person, business, organization, or other entity to another party. In exchange for this loan, the recipient incurs a debt. Typically, the recipient is responsible for paying interest on the debt until it is repaid, as well as the principal amount borrowed.
Lending can be a profitable source of income if the parties agree on the terms of the loan. But it can also cause problems for the lender, who risks losing money when the loan is not repaid. Lending can be done in two ways – by giving money to an entity with a cash shortage, or by borrowing money from another entity with a cash surplus. The entity providing the money will expect to be reimbursed, but in exchange, it will be expected to repay it. The borrower will then use the money for its day-to-day operations, new projects, or expanding their business. But lending is not a good idea for businesses because the process can lead to financial problems for both parties.
Lending has many different forms. In short, the process starts with the lender giving the money to the borrower. A borrower will fill out a loan application form containing details about the amount requested, the intended use, cash flow and income, and the borrower’s physical address. Alternatively, the lender may approach an individual or business with a credit proposal. These proposals are typically directed at high-growth businesses or individuals with high net worth.