Once your business has grown beyond a certain size and you have reoccurring revenues and a history of earning money and repaying debt, you may have your eyes set on expanding your business. Financing that expansion can be challenging, even with a growing and profitable business and there are a lot of different ways to obtain loans, though it is difficult to narrow down to the right factoring company for your business.
The best type of loan for your business will depend on many different things. Businesses that have a large amount of assets such as inventory or accounts receivable balances will typically benefit by asset based loans which provide lower interest rates then other loans that don’t offer the same protection to lenders. Asset based loans will have maximum limits set based upon the total loan amount as well as a percentage of the assets being collateralized by the loan. Further, they allow borrowers to finance their operations to a greater degree when their financial needs are higher, typically during seasonal parts of the year when they are holding more inventory. This makes an asset based loan an compelling option for certain business types.
Businesses that don’t have these assets as collateral due to the nature of their business can still obtain revolving lines of credit which allow borrowers to borrow more or less given their financial needs at the moment. While borrowers under a revolving line will have to pay a small facility fee for amounts that they are not actually borrowing just to reserve funds for their business, using a revolving line of credit allows a business to lower their total debt and only to borrow what is needed at a distinct moment in time. This is a great vehicle for mid sized business that are trying to grow and take advantage of market opportunities, but not to have to borrow a large amount all at once. In this situation the loan amount can meet their needs and allow management with the ability to manage the available cash for borrowing.
On the other hand, businesses that hold real property will benefit more from mortgage loans which can provide for even lower interest rates and provide lenders with even greater protection from default. For companies with large initial investments needed for a project, a simple note payable agreement can provide the structure and regular payments that they need to finance their business effectively and allow them with the ability to budget out their future cash needs more effectively.
Mid-sized businesses with stable operations have a variety of different options available for borrowing money through financial services. The key is finding the right type of loan for the business that you are in, given the varying advantages and disadvantages associated with each type of loan.