The Different Types of Bank Loans

There are many different types of bank loans, each having their own respective purpose. All bank loans are categorized into two distinct groupings; secured and unsecured loans. Within in each category of loans there are several different sub-types of bank notes used to make a loan. Both categories require the owner of the small business to provide a personal guarantee to ensure the bank loan is paid back.

Convertible Debt

Convertible Debt

In poker, deuces are often called the wild card.  You can use the card as a ‘Two’ or as any other card in the deck.  In effect, you can convert the card to something else.  Well, convertible debt uses the same principle in business.  The holder of the convertible instrument has a choice, continue to collect interest as a debt instrument or convert the debt to equity. 

Crowdfunding in Small Business

Crowdfunding

The process of collecting a large pool of investors, each contributing or investing a small amount of dollars for a highly focused project is referred to as crowdfunding.  The crowd is financing the project or goal.  This is very similar to how large non-profits address significant events worldwide.  A good example is the American Red Cross addressing disaster relief in the aftermath of a major natural tragedy. 

Rule of 72

rule of 72

A quick and easy way to determine the doubling of value for a given sum based on an interest rate is the Rule of 72.  This simple formula has three factors.  The first is the interest rate; the second is the amount of time in years to double the value and of course the number 72.

Recourse and Nonrecourse Types of Loans

Recourse and Nonrecourse

When a lending institution loans money they mostly fear nonpayment of the debt.  Often these loans were implemented due to a third party’s endorsement.  To qualify the endorsement the bank may require the third party guarantee the debt.  This is known as having ‘Recourse’ in getting the debt paid

Quick Ratio – Definition, Explanation and Proper Use

Quick Ratio

The quick ratio is a formula used in business to identify the ability of a business to pay its current liabilities.  It is also known as the ‘Acid Test’ formula (ratio).  In the large markets this formula is one of the financial industry ratios used to value the stock of a corporation.  In the arena of the small business, you should only use this ratio as a means to gauge ability to pay your bills right now.

Small Business Administration – Capital, Development & Contracting

Small Business Administration

The Small Business Administration (SBA) is an agency of the federal government that provides loans, counseling and procurement opportunities with the federal government.  Simply stated: “The SBA helps Americans start, build, and grow businesses”.  No other resource exists that is as dynamic and beneficial to the small business owner as the SBA.

Inventory – How to Finance

Inventory Financing

In financing a small business, there are a multitude of tools available.  One way to finance inventory is by using the 30 day pay program with your vendors.  Another tool is seasonal payment program and a third tool is exercising a line of credit tied to receivables or sales history. 

The Different Types of Bank Loans

Types of Bank Loans

There are many different types of bank loans, each having their own respective purpose.  All bank loans are categorized into two distinct groupings; secured and unsecured loans.  Within in each category of loans there are several different sub-types of bank notes used to make a loan.  Both categories require the owner of the small business to provide a personal guarantee to ensure the loan is paid back. 

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