When it comes to the different types of business loans available in the marketplace, owners and entrepreneurs can be forgiven if they sometimes get a little confused. Borrowing money for your company isn't as simple as just walking into a bank and saying you need a small business loan.
What will be the purpose of the loan? How and when will the loan be repaid? And what kind of collateral can be pledged to support the loan? These are just a few of the questions that lenders will ask in order to determine the potential creditworthiness of a business and the best type of loan for its situation.
Different types of business financing are offered by different lenders and structured to meet Facebook different financing needs. Understanding the main types of business loans will go a long way toward helping you decide the best place you should start your search for financing.
A bank is usually the first place business owners go when they need to borrow money. After all, that's mainly what banks do - loan money and provide other Twitter financial products and services like checking and savings accounts and merchant and treasury management services.
But not all businesses will qualify for a bank loan or line of credit. In particular, banks are hesitant to lend to new start-up companies that don't have a history of profitability, to companies that are experiencing rapid growth, and to companies that may have experienced a loss in the recent past. Where can businesses like these turn to get the financing they need? There are several options, including borrowing money from family members and friends, selling equity to venture capitalists, obtaining mezzanine financing, or obtaining an asset-based loan.
Borrowing from family and friends is usually fraught with potential problems and complications, and has the potential to significantly damage close friendships and relationships. And the raising of venture capital or mezzanine financing can be time-consuming and expensive. Also, both of these Blogspot options involve giving up equity in your company and perhaps even a controlling interest. Sometimes this equity can be substantial, which can end up being very costly in the long run.
Asset-based lending - asset loan however, is often an attractive financing alternative for companies that don't qualify for a traditional bank loan or line of credit. To understand why, you need to understand the main differences between bank loans and ABL - their different structures and the different ways banks and asset-based lenders look at business lending.
Banks lend money based on cash flow, looking primarily at a business' income statement to determine if it can generate sufficient cash flow in the future to service the debt. In this way, banks lend primarily based on what a business has done financially in the past, using this to gauge what it can realistically be expected to do in the future. It's what we call "looking in the rearview mirror."
In contrast, commercial finance asset-based lenders look at a business' balance sheet and assets - primarily, its accounts receivable and inventory. They lend money based on the liquidity of the inventory and quality of the receivables, carefully evaluating the profile of the company's debtors and their respective concentration levels. Asset Based Lenders will also look to the future to see what the potential impact is to accounts receivable from projected sales. We call this looking out the windshield.