In addition to unsecured term loans, businesses have the option to provide collateral in order to obtain a secured term loan. By offering collateral that can be claimed by the lender in case of loan default, you may qualify for a larger loan or enjoy more favorable loan terms.
Depending on the specific requirements, there are secured term loans that allow you to utilize the funds as needed, while others mandate the funds be used to purchase the asset securing the loan.
Several common types of secured business term loans include:
Asset-secured business loans: Depending on the lender, you can use machinery, equipment, real estate, or other assets as collateral for a secured installment loan.
Equipment financing: Similar to obtaining an auto loan for purchasing a vehicle, equipment financing loans enable you to acquire specific pieces of equipment. These loans can be obtained from banks, credit unions, or directly from the manufacturer's financing department.
Commercial real estate financing: If you're in the process of purchasing commercial real estate, exploring commercial real estate financing options is essential. Once you own the property, you may also have the opportunity to utilize your equity to qualify for a commercial real estate equity loan or line of credit.
Invoice financing: Also known as accounts receivable financing, invoice financing allows you to leverage your unpaid invoices as collateral for a short-term loan or line of credit. Alternatively, invoice factoring provides an alternative financing approach where you sell your unpaid invoices to a factoring company instead of using them as collateral for a loan.
Additionally, certain business loans may require you to secure the loan with a blanket lien. This type of lien grants the lender the right to claim any of your business's assets, including accounts receivable and equipment, to settle an unpaid debt.
A business line of credit offers a versatile form of financing that provides the freedom to borrow funds without any obligation to do so. When you establish a line of credit, you are granted a maximum credit limit against which you can borrow through a single loan or a series of loans known as draws. Interest charges are applicable only when you borrow money, although there might be maintenance and financing fees associated with the account.
Lines of credit can be structured in various ways. A revolving line of credit operates similarly to a credit card, allowing you to borrow, repay the balance, and borrow again, as long as the total balance remains within the credit limit. On the other hand, non-revolving lines are less common and impose a cap on the overall borrowing amount. Once you reach this limit, you must continue making repayments and are unable to request additional draws.