There will be eight types of loan and credit arrangements discussed further below:
Floor plan loans: These are loans that are mainly supplied by manufacturers of a good to the party, who in-turn will offer these goods in their retail or distribution locations. The retailer then reimburses the manufacturer for the loan, once the product is sold.
Bridge financing: Until long-term funds can be obtained, this type of interim financing gives short-term funding to cover the firms costs of a starting a new project.
Mezzanine financing: This merges long-term lending with an equity position.
Factoring: This type of financing is made available to those more specialized businesses (and banks at sometimes in a limited sense). A firm sells its accounts receivables to a factoring company (i.e. Factoring Canada) often at a discounted rate, sometimes as high as 85 percent of a high quality account.
Letters of Credit: These are the most widely used form of credits in exporting and importing firms. One of the most common exporting issues is the collection of your accounts receivables. A letter of credit is granted by a bank of the purchaser. This is the purchaser’s reassurance that the money has been allocated to the side, and will be paid accordingly once all of the services have been rendered. Most banks give this letter, once they have looked into the security behind giving the credit.
Inventory Financing: In some instance, financial organizations will grant small businesses to borrow against a percentage vale of their available inventory in location. The business in question, as a requirement will need to prove that they have inventory that they can readily sell. The owner could receive financing as high as 70 percent, if the stability of the inventory has been guaranteed. Some only receive 30 percent.
Accounts Receivables: This type of financing, allows the money owed by the clients of a business (one firms source of accounts receivables) to become the collateral for the loan. Many financial institutions and banks have been known to issue some 75 percent of the total value of the firm’s accounts receivables. Upon showing that the firm has a sufficient level of security attached, the firm may get a better loan percentage upon determining the percentage value of the receivable.
Conditional Sale: Some producers will provide to small businesses financing, for a particular product or service on a conditional basis. These manufacturer’s will demand that a large down payment be made, and allows that the business pay the leftover portion of the financing over a period of time in sometimes pretty hefty installments.
Maybe as a small business owner / entrepreneur you will need to secure one of the aforementioned types of financing, maybe not. But if you are to become a recipient of such a loan be sure to investigate your options accordingly. Pick up the phone; send faxes, and emails out to differing financial institution’s, to find out rates, fees and such.