Company Doctor 

Company Doctor

Scott Clark is a business consultant and columnist based in Cedar Rapids. Iowa. You can send The Company Doctor questions or comments by email at sclark@bizjournals. You can also visit the Company Doctor's web site.
Has a projected future cash crunch for your business started you thinking about another bank loan? Before you decide. consider this: banks offer far more than one or two types of business loans.
Here is a non-exhaustive list of fourteen different types of bank business loans. To take advantage of the best financing option for your business. you need to know what is available.
These are the most popular business loans. They usually have a maximum term of one-year; however. the bank may agree to extend them for several years. The bank will require collateral as a secondary source of repayment. and the lender must believe that the growth of the business will generate funds for repayment. Here are six different types of short-term loans:
1. Short-Term Operating Loan (also referred to as a commercial loan). This is a three to six month general business loan with a lump sum repayment due at the end of the term. If the due date approaches and current conditions make full repayment difficult. ask for an extension. However. you will still be required to pay off the accumulated interest.
2. Line of Credit. This is a "pre-approved" loan (up to 24 months) with the bank setting a maximum credit line and giving the company a time limit to draw against it. You may be required to pay an up-front commitment fee of up to one percent of the credit line.
3. Inventory Loan. This is a six to nine month loan used to finance seasonal inventories and is usually reserved for established profitable businesses. Repayment is made in installments as the inventory is sold.
5. Factoring. This type of loan is used when the business cannot qualify for accounts receivable financing. The business sells its receivables to a factoring institution (called a Factor) and receives discounted funds immediately. The Factor assumes the credit risks and collection responsibilities. with end customers making payment to a P.O. Box held by the Factor. The factor will refuse any invoices it considers to be high risk. and the cost of this type of loan is very high.
6. Letter of Credit (or LOC). This is not a true loan but rather a guarantee of payment by the bank if you fail to do so. When a vendor won't ship inventory on open account and you can't afford to pre-pay. ask if your supplier will accept a bank letter of credit (or LOC). The bank will charge you a fee of at least one percent of the amount guaranteed by the LOC and will want as much documentation as it does for a business loan.
These are usually for a period of one to five years and are utilized to finance plant expansion and equipment. For these loans. banks are very concerned about collateral and will probably require additional collateral from companies with perceived risk. Here are three different types of medium-term loans:
2. Monthly Payment Business Loan. This is variation of the term loan structured with monthly payments. You may be able to negotiate lower payments for the first two years.
3. Equipment Lease. The lease is for a period of two to five years. Larger banks may have their own leasing arm. while smaller banks often have equipment leasing company affiliations. Leasing a piece of equipment means a lower monthly payment when compared to a term loan. However. the lessor retains title to the equipment at the end of the lease.
These are usually for a period of five years or more and are the hardest type of loan to secure. They are typically made to established companies (and some early-stage companies with strong collateral) for property acquisition or major expansion. Here are five types of long-term loans:
1. Commercial and Industrial Mortgages. These loans are usually written for five to ten years but may be for as long as 25 years. They are used when buying buildings and property. with the bank usually loaning up to 75 percent of the property value. Payment terms vary widely. depending on the amount of the loan and the perceived risk.
3. Personal Loan. Bankers believe your personal assets should provide much of the financing for major expansions or acquisitions. so consider a personal loan as part of your long-term financing plans. You personally borrow from the bank and turn over the proceeds to the company as a "subordinated loan." which is repayable only after all other company debt is discharged. Or you may choose to invest the funds as equity. in which case the net worth of the company is increased. In either case. your balance sheet will appear more attractive to your banker.
4. Asset Based Loan or Leveraged Buyout (known as an LBO). This loan is used by established companies with sufficient cash flow to service the additional debt. LBOs are typically orchestrated by major brokerage houses or LBO specialists.
5. Start-Up Loan. This loan is the only bank financing alternative for a start-up company with little collateral. The bank will expect to see your own money in the deal. and will probably require a loan guarantee from the Small Business Administration.
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? 2006 American City Business Journals. cached or otherwise used. except with the prior written permission of bizjournals.





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