Loan Types

Not all loans present the same risk to a lender. Below you will find general conditions for different loan types. This list is not all inclusive and will change from one lender to another, and as the economy changes. Many loan requests have elements from a couple of loan types which create blended loan requirements, terms and conditions.

Generally you will need to have a good credit score. Anything from 650 and up can be considered good. If you have had credit problems in the past your loan can be more difficult to approve. Bankruptcies and recent delinquencies are difficult to overcome.

Plan on putting a minimum of 10% cash down on all loan requests unless otherwise stated below.

  • Start Up: A start up business can be a franchise or from scratch. These are businesses that are less than a year old. You need 3-5 years of direct industry experience. 20%-30% cash as a down payment on the total start up expense. 3-6 months of working capital in cash reserves and 100% collateral for the loan. These loans are normally amortized over 10 years.
  • Construction: Whether you are remodeling or building a new structure your loan will be reviewed as a construction request. These loans require between 10%-20% equity depending on the project. Equity can be given for the existing value of a building or lot to be improved. Loans on real estate are amortized over 20-30 years depending on the lender.
  • Expansion or Business Acquisition: When purchasing a business or expanding your current operation to a new location you will normally be expected to self fund 10% of the total project cost. The more money you put down the more motivated your lender will be to finance your loan. Some equipment leasing companies will give 100% financing for loans/leases on new equipment.
  • Debt Refinance: Refinancing existing debt is a great way to take advantage of lower interest rates and lower monthly payments. These loans normally require nothing down. Make sure you check for prepayment penalties on loans you plan to refinance.
  • Growth: Growing pains in business cannot always be solved by increasing sales. It takes cash to keep up with a growing business. The key to growth lending is determining whether you need permanent or temporary capital. (Temporary capital is further defined under Inventory and Account Receivable loan types.) Permanent capital is normally paid back over 5 years and is used to increase inventory or support payroll. This money is needed to support sales today and in the future. This money is typically unsecured and difficult to get. These loans are given to strong companies with excess collateral that can be used to support the loan request.
  • Inventory and Account Receivable: This is a temporary source for cash. Often this type of financing comes in the form of a Line of Credit. These are used to offset seasonality in a businesses operation. This money is expected to be borrowed and paid in full within a rolling 12 month period. When this does not ocurr a lender will be concerned about your businesses performance. Never finance permanent loan needs with a line of credit. A lender will advance from 50%-95% of your receivables.
  • Investor Real Estate: If 49% or more of a property is leased/rented it is considered investor real estate. The advance rates are normally around a 75% LTV. These loans are amortized from 20-30 years but can have shorter terms. These loans are based on income received and are penalized with vacancy and maintenance factors. Net operating income (NOI) on these loans need to be around 1.35 times the debt load. Some of these loans can be non-recourse depending on the lender and property type. If you are purchasing one of these properties you will need to put 10%-25% cash down.
  • Owner Occupied Real Estate: Loans for your business location can require as little as 10% down with an SBA guarantee. Owner occupied debt service ratios only need to be around 1.25 times in order to get financed. These loans can be amortized over 20-30 years. Lenders like these loans because of SBA and USDA guarantees available to further secure the loan request.
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