Types Available – Commercial Loans
Posted on March 25, 2011 by Harris Smith
Equipment financing is still the best option when buying equipment for companies and small businesses. It protects the working capital you have in the bank and also protects your bank line from becoming depleted. Why is this so important? The number one reason for businesses, which are less than five years old, closing their doors is they simply run out of capital before their product has had a chance to succeed.
But this type of convenience does come at a price. Since these loans carry a higher risk, they will have a higher interest rates, points, and other additional costs associated with them. It is also common for these loans to carry a higher loan-to-value ratio, and it is common for them to have a balloon payment after a period of a few years.
The drawback, however, is that a community bank will rarely lend to a business that has been operating for less than 2 years. Another drawback is that they are often subject to mergers and acquisitions where they get gobbled up by large private banks. When that happens, they might revamp the whole system in such a way that your existing loan will be negatively affected.
Growing Business This is the ideal time for a small business owner to approach a community bank as they usually lend to businesses that have already gone past the introductory stage. As mentioned earlier, if your business is more than 2 years old, there is a good chance to get approval at your local bank.
Consider these key reasons to finance your next purchase: Protect your cash and business credit line. Emergencies will happen and also opportunities; make sure you have enough capital to cover yourself in each situation. Overall, it’s better to finance equipment than to finance money.
Fast growing business You will probably expect this to be the most attractive classification. The fact however is that they get very fidgety when they see one of their clients experiencing a rapid growth in their business. This happens because rapid growth and profitability levels do not always go hand in hand.
Build your business credit profile. As you successfully complete each finance, your company will build positive points toward its’ overall credit profile. This value is reflected each time a new vendor checks your credit and offers you the most favorable terms. Also, each new finance will be approved more quickly and at the best rates.
Another popular way to implement their use is during a project’s permit phase. Since there is never a guarantee that a project will receive the necessary permits that is needs to carry on the work, a bridge loan might be inserted during this lull in order to carry it until the official documentation has been obtained. Of course, as with any practice of lending the higher the risk, the higher the fees involved.
Harris Smith is a personal finance writer interested in home equity line of credit Don’t Miss Out! On profit Debt Consolidation service includes credit counseling and financial education programs.