What business loan a business can get depends on two things: first, the type of loan considered, then, the borrowing capacity of the business, which in turn depends on many factors. Business loans can be grouped in two very broad categories: unsecured loans and secured loans.
Secured business loans are asset-based loans. This means that these types of loans use company assets as collateral. Eligible assets can be any business property such as real estate property, company equipment, machinery, IT equipment, furniture or accounts receivables such as outstanding invoices waiting to get paid by clients of the business. By proxy, assets owned by the business owner are often included, in case a director’s guarantee is required by the lender.
Unsecured business loans are non-asset based loans. In case the borrower fails to meet repayment required, no company assets will be claimed by the lender, as they can be in the case of a secured loan. These types of loans usually carry much higher interest rates.
The borrowing capacity of the business, also called borrowing base, depends on many factors. A borrowing base certificate sums up all assets owned by the company which can be used as collateral. The borrowing base or borrowing capacity corresponds to the total value of these assets, reduced by the discount rate applied by the lender. The final result says what business loan, or rather more precisely how much money a business can claim.
- What are asset-based loans?
- What is a secured business loan?
- What is business loan protection?
- What is an unsecured business loan?
- What is business loan repayment insurance?