Credit Lines
With a credit line agreement, the lender supplies a business with funds intended to fill temporary shortages in cash. These shortages are brought about my timing differences between outlays and collections. Credit lines are typically used to finance inventories, receivables, project or contract related work.
Short-Term Loans
Short-term loans are generally used for seasonal build-ups of inventory and receivables. In most cases, these loans are repaid in a lump sum at maturity, made on a secured basis. These loans are for a term of a year or less.
Asset Based Loans
Asset based loans are loans in which a lender advances funds based on a percentage of your current assets. This type of loan is generally used as a source of funds for working capital needs. Typically, the lender will take a security position in the assets owned by the business.
Contract Financing
Contract financing refers to advances of funds as work is performed. With this type of finanare usually made directly to the lender.
Factoring
Factors rely on their own credit and collection expertise to actually buy your receivables. In essence, your customers become their customers. This type of financing is often used by firms who are unable to obtain bank financing. The cost of factoring is usually higher than other forms of short-term financing.
Term Loans
Term loans are used to finance your permanent working capital, new equipment, buildings, expansion, refinancing and acquisitions. The major source of funding is commercial banks. Term of the loan is based on the useful life of the assets being financed or collaterized. Two key factors lenders consider when making term loans are your projected profitability and cash flow.
Equipment and Real Estate Loans
Equipment loans refer to a loan that is fully secured by the equipment being purchased. Typically, banks will loan 50% of the value of the equipment . These loans are repaid over the life of the equipment.
Lenders will also make long term loans that are secured by commercial or industrial real estate. Banks usually loan up to 75% of the value of the real estate to be financed. Terms for repayment range from 10 to 20 years.
Leasing
Leasing, in most cases, occurs through a leasing company. Your business will be subject to the same type of review as when applying for a loan, more spefically cash flow of the company, value of the lease object and useful life. Leasing terms typically range from 3 to 5 years. At expiration of the lease, generally you have three options: to purchase, to renew or to return.
3-15 Year Balloon Loans
Interest rates for balloon loans are fixed for a period of years, and are typically pegged to a treasury index. Terms are for 3, 5, 7, 10 or 15 years. Amortization schedules are generally for 20 to 25 years.
At the end of the agreed term, when the balloon loan has matured, the remaining outstanding principle balance is due in full. The borrower has the option of either selling the property or refinancing to pay off the loan.
Adjustable Rate Loans
In most cases, adjustable rate loans will fully amortize with no balloon features. The loans may or may not have adjustment caps. The rate is determined by an index plus a margin and the indices used are generally U. S. Treasury bond rates. These rates are adjusted at a certain point in time using either the current rate of hte index in questions or the average of the index for the prior year. In either event, the index used corresponds to the adjustment term. If the loan is a three year adjustable, then the index used should be the three year treasury index. Be aware that some adjustable rate loans are fixed for an initial period and then will adjust after that period. For examples, a 5/1 adjustable rate loan is fixed for the initial five-year period and will adjust annually for each year thereafter. The index used will the one-year treasury rate.
Hard Money Lenders
This type of financing is for people with bad credit history or no credit background. If you have filed for bankruptcy in the past 5 to 7 years, or you have gone through a tough divorce, this type of loan is available for higher interest rates and lower LTV.
