Types of Loans for Business Growth and Expansion

HSBCAre you looking to expand your business? That means you’ll have to spend money. Even if business growth and expansion will bring in bigger profits, your cash flow is still going to take a hit unless you choose to look beyond the business coffers. The usual solution is to turn to a financial institution for funding assistance.

What are the different finance solutions offered for business growth and expansion?

•    Account receivable financing – This is a form of financing that takes pledged receivables as security. Using receivables that are less than 60 to 90 days old as security can give the borrower up to 90 per cent in advance from the lender, but more typically, only about 75 per cent.
•    Bridge loan – This is a way for the borrower to create cash flow over brief periods. It bridges the cash-strapped gap between the delivery of goods or completion of a project and its payment.
•    Demand loan – This is a short-term loan that has a floating rate and no fixed payments. It can be paid off early without the borrower incurring penalty. It is mainly defined by the lender’s ability to demand full payment any time. It’s not recommended for the peaks-and-valleys type of business.
•    Inventory financing – This type of loan takes inventory pledged as security, but the borrower usually doesn’t get more than 50 per cent of his inventory’s value.
•    Line of credit – This refers to an agreement establishing the maximum amount that the borrower may get from the lender. It comes with conditions — usually, stipulations on how and when the loan against the line of credit is to be paid.
HSBC•    Operating loan – Usually included in the line of credit, this is a loan used for short-term financing to promote cash flow and take care of the day-to-day costs of operation.
•    Subordinated debt – This is a special kind of financing option involving the acceptance of a reduced interest rate by the lender in exchange for equity participation.
•    Term loan – This is a medium- or long-term type of loan used to finance purchases of fixed assets like equipment, real estate, or property renovations.

These are just some of your options for coming up with the funds necessary to grow and develop your business. If you decide to go for a loan, make sure that you transact with an institution that is staffed with finance specialists who can advise you on your best option. Know more about business growth and expansion services on this site.


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