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Business Loans

Business loans can help a company to grow using a working capital or a merchant cash advance program.

There are a multitude of products and programs that fall under the business loan umbrella with each having their place of consideration. The common thread shared amongst the different structures is the uncollateralized nature of the debt. In equipment leasing and financing the debt is collateralized by the equipment that is being financed, which mitigates risk. Business loan programs carry increased risk due to the uncollateralized and unrestricted use of fund.

Depending on your need and situation the most frequent considerations made when choosing the right program is made on a sliding scale of time and convenience, in relationship to the cost of funds. The most common programs made available to businesses in need of capital injections are categorized into revolving lines of credit (credit cards), merchant cash advance loans, and term loans. The sliding scale of consideration begins with revolving lines of credit which have the shortest time of approval and highest level of convenience, but also the highest cost of funds. On the opposite side of the spectrum term loans often require lengthy and very involved credit processing which sometimes stretch for months. The upside however is that positive approval means a lower cost of funds.

Why Companies Use Business Loans

Capital injection is the fuel by which most small and medium-sized businesses grow. The business landscape across most industries has changed. Companies that were once cash abundant find themselves in a much different situation today. Surveys across multiple industry verticals are reporting gains in business activity; however, the recent economic downturn has thinned the herd of competition. The scenario of more business and less competition has many companies poised to grow. Business loans and the unrestricted use of funds can be applied towards expanding present locations, or to seize an opportunity in the marketplace left void by an absent competitor.

Ever wanted less money for business growth? Of course not.

How Companies Qualify for Business Loans

Revolving Lines of Credit: Though traditionally not used or intended to be classified as a business loan, credit cards are sometimes used as a short term source of working capital. The qualifications for credit approval vary widely depending on the issuing source, but the requirements are typically based solely on personal credit of the applicant. Most approvals are done nearly instantaneously online with a simple application, but have a high cost of funds with low lines of credit.

Merchant Cash Advance Loans: The growth of this program over recent years has been in large part by the standardization of programs, and the entry of more lenders into the industry. Cash advance loans share common minimum standards and pricing, and are becoming a popular method for short term financing (6 to 18 months). In contrast to revolving lines of credit, merchant cash advance loans are weighted very little on individual credit scores (accepting FICO scores as low as 475). Emphasis is placed more heavily on the volume of credit card transactions processed by the applying company in determining the line of credit amount. Repayment is made as small deductions of your daily credit card sales until the advance is made whole.

Term Loans: Often offered by banking institutions these programs are for a fixed amount over a specific repayment schedule, but have a floating interest rate. Term loans require thorough and stringent credit and financial analysis that can stretch the process as long as several months. Term loans are a large investment of time and resources to acquire, but yield the lowest cost of funds. Because of the approval difficulty and low cost of funds most term loans are not profitable to pursue by banks unless the transactions is north of $250,000.