Lending Sources

Traditional Financial Institutions: This is the cheapest way to get a loan for your business. This money normally has a 1%-2% origination fee with rates as low as 5% annually. These lenders are your banks and credit unions. Although you can acquire the best rates and terms through a financial institution, it may be very difficult to qualify. The loan application process with these lenders is cumbersome but worth it if you qualify.

Government Guarantees: SBA and USDA B&I guarantees are used to shore up collateral, start up and other risks of loan requests. These guarantees are tools a lender will use to help get your loan approved. The SBA and USDA will partner with a lender to fund your loan, but they will not fund it without a lender. For this reason you must get a lender interested before the SBA or USDA guarantee programs will apply.

Accounts Receivable Financing (A/R financing): This is also referred to as factoring. This is a more expensive way to get financing. A/R financing is for companies who want to speed up cash flow. Typically the borrowing company sells their A/R to the lender at some depreciated rate (75-95% of the value). A fee is charged up front for the volume of cash advanced and interest is earned as well. These loans are typically extended for a 30-90 day window. The key underwriting metric lenders review is the borrowers clients or receivables.

Contract Financing: These lenders are similar to the A/R lenders but will advance on contracts from 12-24 months.

Insurance Companies: Insurance companies have set aside money to invest in commercial loans. They can be more aggressive in giving your business better interest rates and terms than other lenders. These lenders offer non-recourse loans to investor real estate requests. Although these lenders offer better terms they may cost more to acquire. You may also be required to put earnest money down, at times 2% of the loan amount prior to closing. Although this money is refunded at closing, you will need to be prepared to live without it for a few weeks during the application process.

Hard Money Lenders: These lenders are not for everyone. Hard money lenders will do deals that have much more risk than traditional requests. These lenders normally charge 5-6% origination fees and have interest rates that range from 10% annually to 3% per month (36% annually). If your projection is profitable enough and you’re running out of lending sources, a hard money loan could do the trick.

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