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What Are the Different Types of Business Finance Loans?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 17 July 2018
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Business finance loans are available to cover a wide range of business needs. Some are aimed at providing resources for expansion of existing building facilities while others are ideal for funding product development, overhauling and updating a company operation, or even providing short-term financial assistance during a temporary slump in cash flow. There are even loans designed to help new business owners launch and grow the business to the point that it becomes self-sustaining. Loans of this type are available to small businesses, large corporations, and every type of business in between.

One of the more common examples of business finance loans is the business startup loan. This type of lending arrangement provides funds that help to launch and sustain a business operation for the first few years of the company’s life. Loans of this type may be obtained from financial institutions or even from a group of venture capital investors who believe in the potential of the business. Repayment terms may require a series of monthly payments that commence at a given point in the relationship, or even a combination of payments and the issuance of shares of stock once the company is approved to trade on the open market.

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Business finance loans may also be extended to companies that are well established, helping them manage income and cash flow to best advantage. One example of this type of financing options is known as factoring. Essentially, a provider purchases the current accounts receivables from the client and advances the majority of the face value of those invoices. Payments on those purchased invoices are remitted directly to the factoring partner. Once the total amount of the advance has been covered, the partner forwards the remainder of the funds collected on the invoices to the client, less a small percentage that is retained to serve as payment for offering the service.

Different approaches to business finance loans may also be used, depending on the circumstances surrounding the needs of the company. Secured business loans allow companies to obtain long-term financing by pledging assets that have a market value exceeding the actual amount borrowed. Companies with excellent credit may receive unsecured loans that require no collateral and can be used for everything from managing day to day operations to funding a major expansion effort. While lines of credit are not strictly business finance loans, this strategy can also be very helpful in managing cash flow to best advantage, often saving the company a great deal of money when it comes to avoiding late fees and charges on debts and making sure payroll is always met on time.

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