Business loans are loans that are specifically intended for business purposes. Like all loans, this involves the creation of debt, which will be repaid with additional interest. There are a number of types of business loans, including bank loans, mezzanine financing, asset-based financing, invoice financing, micro-loans, business cash and cash flow loans.
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Bank loans can be obtained from banks and can be guaranteed or unsecured. For a secured loan, the bank will ask for a guarantee, which may be lost if the payment is not made. Banks may want to look at business accounts, balance sheets and business plans, and learn about the credit histories of the perpetrators. Many smaller businesses are now turning to Alternative Financial Providers, especially in the case of smaller companies.
Loans from credit unions can be referred to as bank loans as well. Business loans from credit unions receive the second highest level of satisfaction from the borrower after a loan from a small bank.
SBA loan
The US Small Business Administration (SBA) does not provide loans; but it guarantees loans made by individual lenders. The major SBA loan program is SBA 7 (a) which includes standard and express options; Microloans (up to $ 50,000); 504 Loans that provide financing for fixed assets such as real estate or equipment; and disaster loans. In TA 2016, a total of 7 (a) volume was $ 11,967,861,900 and a total of 504 loan volume was $ 2,517,433,000.
Finance mezzanine
Mezzanine Finance effectively secures the company's debt on its equity, allowing the lender to claim ownership of a part of the business if the loan is not repaid back on time and in full. This allows businesses to borrow without installing other collateral, but the risk of weakening the shareholders' equity share in the event of default.
Asset-based finance
After considering the financing options of the last resort, asset-based loans have become a popular choice for small businesses that do not have credit ratings or track records to qualify for other forms of finance. In simple terms, it involves borrowing against one of the company's assets, with a lender focusing on the quality of the collateral rather than the credit rating and prospects of the company. A business may borrow from different types of assets, including buildings, factories, stocks or accounts.
Financial invoice
- Main article: invoice discount and factoring (financial)
In recent years, it has become increasingly difficult for SMEs to get traditional finance from banks. An alternative option is an invoice or factoring discount, in which the company borrows against outstanding invoices, with the ability to raise funds as soon as a new invoice is made. It's often questionable which option is best for your business - factorization or discount - and the answer depends on how the business wants to be perceived by the customer. With factoring, the finance company charges the interest on the loan until the invoice is paid, as well as the costs, and the finance company takes over the debtor ledger and uses its own credit control team to guarantee payment. With invoice discounts, businesses maintain control of their own ledger and pursue the debt itself.
Microloans
Smaller loans, usually for a loan amount of $ 100,000 USD or less, are referred to as "microcredit." Banks tend to make these loans than alternative lenders. When they do, the decision is usually based on the personal credit score of the business and/or the business credit score.
Online Loan
There has been an increasing number of online lenders offering small business loans. Online alternative lenders derive about $ 12 billion in small business loans in 2014, with unsecured consumer loans representing $ 7 billion and small business loans totaling about $ 5 billion. Nonbank lenders that make small business loans have doubled their outstanding portfolio balance every year since 2000. Some online come from their own capital loans. Others may use the "market" model, where they match borrowers with loan products from various lenders. Others use a crowdfunding platform that allows businesses to raise capital from multiple sources.
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Business loans are safe and insecure
- Main article: secured loans and unsecured debt
Business loans can be guaranteed or unsecured. With secured loans, the borrower promises an asset (such as a plant, equipment, stock or vehicle) against debt. If the debt is not repaid, the creditor can claim the secured asset. Unsecured loans have no collateral, although the lender will have a general claim on the borrower's assets if the payment is not made. If the borrower becomes bankrupt, the unsecured lender will usually be aware of the smaller proportion of their claims than the secured creditor. As a result, secured loans will generally attract lower interest rates.
Lenders who make business loans often use UCC submissions to remind other creditors of their security interests in business property. UCC filings may be placed against a particular asset, or UCC blanket filing secures interest on all properties. UCC archiving may affect the business credit score and may make it more difficult to get the next financing.
Personal warranty
Many lenders require principals with 20% or greater ownership in business to provide personal guarantees. Personal guarantees allow the lender to try to collect the debt from the guarantor's personal assets. Small business lenders can set aside personal security requirements if a business has strong business credit scores and revenue. In May 2016, changes to the Member Business Credit rules by the National Credit Administration Agency further increased this loan, allowing the discretion of credit unions to obtain personal guarantees from a borrower.
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Source of the article : Wikipedia
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