As enterprise executives know better than anyone, behind the scenes it’s essential for cash flow to flow, and for working capital to be working. Otherwise, it’s only a matter of time before revenue and profit targets are missed, aggressive competitors smell blood in the water, frustrated customers head for the exits — and the terrifying downward spiral continues.
Fortunately, whether the plan is to fund an expansion, launch a product line, purchase equipment and inventory, onboard new team members or support any strategic investment, there are several types of big business loans that can drive an enterprise onward and upward. Here are three of the most common:
Big Business Loan #1: Working Capital Loan
A working capital loan is a cash infusion that is paid back on a regular basis (typically monthly). These types of big business loans aren’t secured by collateral, and an enterprise doesn’t have to be profitable or cash flow positive at the time of application to get approved. Limitations, such as bad credit, open tax liens or industry restrictions, can be overlooked by some lenders to get a working capital loan. Furthermore, the application process itself is streamlined and fast with some lenders approving applications in less than 24 hours.
Big Business Loan #2: Accounts Receivable Financing
Accounts receivable financing is a form of asset-backed financing in which receivables are used to secure a financing agreement. Essentially, it’s a way for enterprises to get early payment on outstanding invoices and purchase orders. This way if payments are delayed, the enterprise still has the funding it needs to continue operations. Then when payments come through, customers pay the lender directly, who keeps the principal and interest (specified per the financing agreement), and remits any remaining funds to the enterprise.
Big Business Loans #3: Business Line of Credit
A business line of credit is more suitable for either short-term funding needs — such as to cover a higher-than-expected tax bill, emergency facility repair costs, and so on. Like a working capital loan, the amount borrowed is typically paid back monthly until settled. However, many enterprises apply for a business line of credit before they need it. Since they only pay interest on the amount they borrow, these enterprises like to have a lifeline in case a short term funding need arises.
What About Bank Loans?
You may have noticed that bank loans aren’t included in the list of preferred big business loans — and there are several reasons for that!
Many enterprise CFOs and other executives view banks as “lenders of last resort,” because banks impose an excessive amount of red tape and rules. For example, during the life of the loan, enterprises may be banned from issuing any new debt, participating in share offerings, acquiring new companies, and so on. And that’s just the start.
Because in addition to the restrictions above, many banks (or more specifically, their army of securities lawyers) establish clauses that send the interest rate surging if certain things happen during the life of the loan, such as the CEO leaves, the stock price falls below a certain threshold, etc. Plus, all bank loans must be secured by collateral, which is an arduous process that can take several months.
If your enterprise needs fast financing to cover a short-term expense or a long-term investment, contact the National Business Capital team today. We’ll provide you with a clear, in-depth overview of our big business loan options, and help you make an informed choice to drive your enterprise upwards and onward.