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Types of Business Loans

Below is a list of various types of business loans. Each listing provides a brief description of the loan, what is typically required to get the loan and who should apply.

Factoring

Description
Factoring is a method of financing in which you sell your Accounts Receivable at a discount to another company. The factoring company advances money to you and is, then responsible for collections.

There are two primary types of factoring, recourse and non-recourse. Recourse is when the client absorbs the risk of non-payment by the buyer. In the event of buyer default, the factors client is responsible for repayment. Non-recourse factoring is
when the factor takes the credit risk of the buyer. If the buyer becomes insolvent after the receivables are purchased, the factor absorbs the loss, not the client.

What Is Needed
In most cases your company should have revenues from $1 million to $200 million and a commercial accounts receivable. Your Company can not have any judgments and liens against it. If you have the desire to have cash flow when you need it and do not want to rely on payments from your clients in order to meet your business needs, factoring may be right for your needs.

Who Should Apply

  • Companies Needing Immediate Access to Cash
  • High Growth and Undercapitalized Companies
  • Companies with Turnaround Situations
  • Seasonal Businesses

Venture Capital

Description
Venture Capital provides funds required by a business to get established or to grow their business. Funding sources and loan types come in many forms. These include:

  • Seed Funding
  • R&D Funding
  • Website Funding
  • Bridge Funding
  • Hard Money Loan
  • Bond Underwriting
  • Stock Portfolio Loan
  • Mezzanine Funding
  • Accounts Receivable Funding
  • 1st and 2nd Stage Funding
  • Letter of Credit

What is required
who should apply, terms and loan amounts vary considerably.


Asset Based Lending

Description
Asset Based Lending is a method of financing using collateral to back the loan. Funding ranges from $400,000 to $20 million. You can use almost any type of unencumbered asset as loan collateral.

What Is Needed
Collateral is required to secure the loan. Examples include:

  • Real estate
  • Accounts receivable
  • Inventory
  • Equipment

Who Should Apply
Companies in the business of manufacturing, distribution, service provisioning or any type of company in any industry, with annual revenues from $2 million to $150 million.

Purchase Order Funding

Description
Purchase Order Funding is a method of financing that can be used when a company receives a purchase order from a credit worthy customer and that order exceeds the company's credit line. It is geared toward the completion of a transaction.

Funding decisions are based on a company's ability to meet their customer's requirements and on their customer's financial quality and terms of payment

What Is Needed
Purchase orders and projects requiring funding for costs, such as, raw materials, deposits, components, sub-assemblies, project-specific labor, finished goods, overhead, direct manufacturing, shipping, service contracts, capital equipment, letters of credit, letters of guarantee and more.

Who Should Apply
Companies with purchase order contracts or projects ranging in size from $200,000 to $1,000,000 and seldom have a gross profit margin of less than 25%.


Equipment Leasing / Leaseback

Description
Equipment Leasing or Leaseback is a method of financing that allow businesses to get the equipment they need to get the job done, without putting a strain on their finances. Leasing and financing options are available on most types of equipment.

Lease terms and structures vary with up to 100% financing. End of lease options typically include ownership. Financing is available up to $100,000.

What Is Needed
Business equipment, machinery, vehicles, computer systems, installation and maintenance services, etc, that are needed and require financing.

Who Should Apply
Companies needing the following; computer hardware and software, phone systems, machinery, vehicles, manufacturing and construction equipment, printing equipment, distribution equipment, trailers and more.


Line of Credit

Description
A Line of Credit is a commitment, by a bank or other lender, to lend money to a person or business entity up to a maximum amount during a stated period. A line of credit is sometimes the most economical way to borrow money since only interest is charged on the amount actually borrowed. A second type of business line of credit is called revolving. A revolving line of credit usually requires collateral (accounts receivable or inventory), has a loan duration over a year, and is available only to established companies. The most popular form of credit line is through your credit card provider.

What Is Needed
The borrower pays a variable-interest rate only on the borrowed funds. In addition, a commitment fee is charged for the amount of the credit limit meaning that as funds are repaid they are available for re-borrowing up to the credit limit. A line of credit is frequently secured with receivables and/or inventories.

Who Should Apply
Any business that can show collateral for the outstanding funds. This can be in business assets, personal guarantee or equity in the business.


Microloans

Description
A Microloan is specifically designed for start-up and newly established businesses. A Microloan can be obtained from credit card providers or through intermediaries. Designed for small companies with few or no employees, Microloans are for small amounts of money ($100 to $25,000). They're not based on your credit history or collateral, but on good character, management ability and a commitment to making your business work.

What Is Needed

  • Personal guarantee
  • Business plan for intermediaries
  • Personal and/or business tax returns for intermediaries
  • Personal financial statement for intermediaries
  • Trade References, personal references

Who Should Apply
Individuals that are starting a business or have a newly established business. Individuals that are looking for business credit cards or loans from SBA banks that may require collateral and a good personal credit history. Small home-based businesses, businesses with 5 or less employees and start-ups are good candidates for a microloan.


Working Capital

Description
Working Capital loans are a perfect solution for companies that require financing for just about any commercial purpose. Terms and funding amounts vary considerably.

What Is Needed
Company information, owner information, Federal Tax ID or Social Security number and bank information. Excellent credit is typically required.


Secured Loan

Description
A secured loan is granted by the creditor by obtaining an interest in specific property (collateral) of the debtor. If the debtor defaults on the loan, the creditor can recoup the money by seizing and liquidating the specific property used for collateral on the debt. For startup businesses, lenders will usually require that both long and short-term loans be secured with adequate collateral.

Because the value of pledged collateral is critical to a secured lender, loan conditions and covenants, such as insurance coverage, are always required of a borrower. You can also expect a lender to minimize its risk by conservatively valuing your collateral and by loaning only a percentage of its appraised value.

What Is Needed

  • Must have a 630 minimum credit score from guarantor.
  • Must have established personal credit lines.
  • Cannot be overextended
  • No excessive credit report inquiries.
  • No bankruptcies, tax liens, collections, judgments, charge-offs, or repo's.

Who Should Apply
Businesses that have at least a 1-year history and reside in the continental U.S.A.


Unsecured Loan

Description
An unsecured loan is specifically designed for start up or new companies. Loan terms, rates and funding amounts vary considerably.

What Is Needed
A 680 minimum personal credit score and have 5 current personal credit lines. The oldest personal credit line must be 5 years or longer and you must have $100,000 in combined credit history established on your credit report. You cannot be overextended and must not have excessive inquires. Your should have no bankruptcies, tax liens, collections, judgment, charge-offs, or repo's.

Who Should Apply
Any Business Owner that can meet the criteria listed above.


 
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