Bank Loan

Definition of a ‘Bank Loan’

A bank loan is an agreement between a bank and a borrower. The bank gives an amount of money (the principal) to the borrower, and the borrower agrees to repay the principal together with a fee (usually called interest).

A business bank loan is usually a secured bank loan as business assets and sometimes personal assets of the owner are pledged as security to the bank in the event of default.

The bank loan agreement will stipulate the terms of the bank loan including the principal, interest rate, repayment amounts and date. For example, a business might borrow 100,000 from a bank at 5% interest to be repaid over 5 years at 23,097 per year.

Financial Projections Template Bank Loan Definition

Bank loans are are type of debt finance and have to be repaid together with interest. The bank loan definition in the financial projections template is that bank loans are included under the heading debt in the balance sheet of the business.

The bank loan balance at the end of a year is part of the debt balance and is calculated as the opening bank loan plus new bank loans less bank loan repayments during the year.

Interest on the bank loan is automatically calculated at the financial projections template interest rate and included in the income statement under the heading of interest.

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