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Are you in business or planning to buy one?
Need $200,000 or more? |
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If you have answered “yes” to both of these questions . . . you may need a commercial loan. |
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Term loans are a lump-sum disbursement with payback over a specified period of time. It’s important to structure a term loan so that debt repayment matches your business cash flow. |
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Secured loans vs. unsecured loans |
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Debt financing can be secured or unsecured. Secured business loans are a promise to pay a debt which is "secured" with specific collateral of the debtor. In order to ensure that the particular collateral provides appropriate security, the lender will want to match the type of collateral with the loan being made. The useful life of the collateral will typically have to exceed, or at least meet, the term of the loan; otherwise the lender's secured interest would be jeopardized. Consequently, short-term assets such as receivables and inventory will not be acceptable as security for a long-term loan, but they are appropriate for financing a line of credit.
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How do you determine the value of your collateral? There are 3 types of appraisals: fair market value, orderly liquidation and forced liquidation. You can expect lenders to minimize their risk by conservatively valuing your collateral (most lenders tend to use the forced liquidation value) and then loaning only a percentage (70%) of its appraised value.
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Short-term vs. Long-term loans |
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Debt financing can be either long-term or short-term. Long-term debt financing is commonly used to purchase, improve, or expand fixed assets such as your plant, facilities, major equipment, and real estate. If you are acquiring an asset with the loan proceeds, we will want to match the length of the loan with the useful life of the asset. |
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Although short-term commercial loans are sometimes used to finance the same type of operating costs as a working capital line of credit, they differ from lines of credit in that a commercial loan is usually taken out for a specific expenditure (to purchase a specific piece of equipment or pay a particular debt), and a fixed amount of money is borrowed for a set time with interest paid on the lump sum. |
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For startup businesses, and most existing businesses, a short-term commercial loan will have to be secured by adequate collateral. Cash flow and a regular sales history are also of key importance. While some short-term loans may be as brief as 90-120 days, the loans usually extend one to three years. These loans may be secured by accounts receivable or inventory, as well as fixed assets (see Asset-based loans). |
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Loan commitment fees and prepayment penalties are common costs associated with commercial loans and should be expected. |
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In order to better serve you, please provide us with some basic information by completing our Term Loans Financing Worksheet. |
