There are multiple types of loans available for companies. Often companies have assets they can secure a loan
against but they don't realize those things are considered assets by lenders. Lenders differ from investors because
they want to know how the loan will be paid back and does the company have the means to service the note.
Traditional Lending: Borrowing
from a bank gets easier as the company matures and shows a history of cash flow. Two years in business with financial
data is typically a minimum requirement, unless the entrepreneur has excellent credit and collateral to secure the loan.
An SBA backed loan simply means that the SBA guarantees some portion of the note for the bank. So the bank can
adjust their underwriting criteria to reflect the small amount that is at risk. They typically do not take a note
against your house, but will want to have enough equity in the home and a first position should you default on the loan; they
know they can recover the majority of their loan.
Alternative Lending: You
may have heard the term "working capital loan". A working capital loan is typically a line of credit
that is secured by the company's receivables. If you typically bill $50K a month, for example, you may be able to secure
a working capital loan or a line of credit for $30K a month. So the money is borrowed and paid back each month
by the cash flow. This is different than "factoring". With factoring, a company provides
an advance against the receivable and when it is collected they take their fee and pay the difference to the company.
Factored receivables cannot be used for a working capital line of credit. Both of these types of lending are very
useful for growing companies when used properly.
Depending on how the contract is written or the purchase order is provided; financing can be secured to help a company fulfill
a contract. If the contract is tight so that the client/customer pays for work completed or product delivered, then
it can be used as "collateral" to borrow money to fulfill the order/contract. Remember, lenders are
in the business of lending money that can be paid back. If they "collect" their money from the company
or the client, because of the terms of the contract / purchase order, then they can loan against it.