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What are Business Finance Companies?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 23 October 2018
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Business finance companies are lending institutions that are established for the specific purpose of extending financial loans to businesses that range from the small local business to international corporations. Various business finance companies may choose to focus on a particular type of business, or specialize in particular types of loans.

In general, a business finance company will often include rates of interest that are competitive and will include terms and conditions that are often ideal for particular situations that occur in the business world. One finance company may choose to focus more on providing seed capital to start up companies, or providing loans that assist an established business to launch a new subsidiary. A second finance lender may specialize in what is normally referred to as angel investing, which involves providing funds that allow a company going through a recovery period to weather hard times and become profitable again.

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Today, there are a number of business finance companies that specialize in providing a revenue stream by factoring the monthly invoices of a company. With lenders of this type, the finance company is essentially purchasing the invoices from the original owner, and paying the client a percentage of the face value. Customers remit payment directly to the finance or factoring company, who then credits the face value, less a small percentage, to the account of the original owner. Once the total amount of the advance payment is covered in full, the factoring company releases the remaining portion of the collected revenue to the original owner of the invoices. This arrangement allows a company to have immediate access to the majority of the current amount of the monthly receivables, rather than having to wait anywhere from thirty to ninety days for customers to remit the payments.

Business finance companies, like any other financial lender, usually require background information, including documents that confirm the current financial status of the applicant and the ability to repay the loan. There is no guarantee of acceptance, although there are a number of business finance companies that cater to troubled businesses. Generally, business finance companies that focus on high-risk loans tend to charge a higher rate of interest, and also tend to not have as liberal terms and conditions as some other options. When investigating business finance companies as a means of securing funds for expansion or other business related purposes, business owners should always attempt to obtain the best terms possible before entering into an agreement with any finance company.

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NathanG
Post 2

@MrMoody - I’ve seen these websites that offer unsecured business loans. Normally I would think there is something shady about these claims, but from what I’ve read they do seem to be legitimate.

These are not typical banks or financial institutions, but private lenders who want to lend to businesses or individuals, and don’t require collateral. What do they get in return? They get a high interest rate (you knew that was part of the deal).

I suppose this would be okay if you can’t get money any other way, but try the financial institutions first. If that doesn’t work and you don’t mind high interest rates, go with these private lenders. Just understand that a default with them will hurt your credit just as much as a default with a financial institution.

MrMoody
Post 1

If you want to know how to get a small business loan, I can provide some tips from my experience of starting a software consulting company.

First, you should direct your efforts to getting a loan from the Small Business Administration. You can certainly try the banks and other financial institutions but the SBA should be your first stop, as it is set up specifically for small business lending.

You can check their website online and you’ll find all the resources you need.

Basically they will provide you with a checklist of what should be in your loan proposal, including a description of the nature of your business, competitive environment, what specifically you need the loan for and collateral, as well as profit projections.

In my case I was able to use existing clients as proof that I had a solid business going and just needed some extra startup capital for computers.

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