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By Eugene E. Valdez AKA The Loan Doctor™
The type of Inland Empire business loans available to local CEO’s is surprisingly large. It’s a big menu, which is a good thing because “one entree does not fit all”. The size of the menu allows CEO’s to order the type of loan that best serves their financing appetite.
Here is my list: (Due to space limitations this is not an exhaustive list. Others could include, land loans, construction loans, income property commercial real estate loans, PO financing, factors, and equipment leasing)
- Revolving Line of Credit
- Revolving Line of Credit with a “30 day cleanup”
- Line of Credit Using a Formula Based Advance % on ARs
- Line of Credit/Term Loan
- Short Term Loan Maturity Less Than a Year
- Term Loan- Buy out partner, long term working capital etc.
- Owner Occupied Commercial Real Estate Loan- Conventional
- Owner Occupied Commercial Real Estate Loan- SBA 504
Some of the loans above a bank, (excluding SBA 504) will make under the condition that the SBA provides a guarantee. Even though these loans are commonly called “SBA Loans” they are just bank loans with a credit enhancement from an agency of the Federal Government.
Revolving Line of Credit- Maximum limit established 12 month maturity. You can borrow anytime you want. You are charged monthly interest on the balance outstanding. Principal payments are at your discretion. There is no requirement to reduce the line balance to zero at any time. Normally your principal balance at maturity is paid off by a new line approved by your bank assuming that you remain bankable. If you are not bankable you will have to find another lender to pay off your line balance.
Revolving Line of Credit with a “30 day cleanup”- Same as above except you must pay the line of credit to a zero balance for 30 consecutive days during the 12 month term. (why? send me an email!)
Line of Credit Using a Formula Based Advance % of ARs- Your ability to borrow is based on a formula which consists of an advance %, (70%-80%) on “eligible monthly ARs”. Eligible ARs are usually those less than 90 days from date of invoice. There are other rules for eligibility as well, such as large concentrations. You can never borrow more than the agreed upon advance % times your ARs. No 30 day cleanup required.
Line of Credit/Term Loan– A loan that is a hybrid, frequently used to buy equipment over time. For example, 5 year maturity, first 12 months is a “draw period“ where you are allowed to take advances as needed up to the loan limit. During the draw period you pay interest on the loan balance outstanding. After 12 months whatever the balance is, it is converted to a four year term loan, fully amortized over 48 months.
Short Term Loan Maturity Less Than a Year– A loan for a very short term period. Say 6 months. Interest is due monthly, no principal. Entire principal is due at maturity.
Term Loan- variety of purposes– All the money comes out a once. Usually 3-5 year terms. Fully amortized monthly payments of principal and interest. Could be used for equipment, buy out a partner long term working capital.
Owner Occupied Commercial Real Estate Loan – Conventional– Loan to purchase a commercial building for your company. (Financing could also include a construction loan with the permanent loan acting as the “take out“ loan) Normally 25% cash down, 75% mortgage. Mortgage is amortized over 25 years with a 10 year maturity.
Owner Occupied Commercial Real Estate Loan- SBA 504– Same purpose as above. 10% cash down. 1st TD loan is with a bank, 2nd TD loan is with the SBA/CDC. Bank loan amortized over 25 years, 10 yr. maturity, SBA amortized over 20 years, maturity 20 years. SBA loan interest rate is fixed for 20 years.
If any of these menu options whet your appetite, give The Loan Doctor a call and we’ll see what Inland Empire Business Loans we can serve you.
Eugene E. Valdez is President and CEO of The Loan Doctor and Associates, Inc., a full service banking and finance consulting company located in Upland, CA. He can be reached at 909-230-0024. Like and follow him on social media Facebook, LinkedIn.
*Have a question for our business advice column or an issue you would like to see addressed in our weekly column? Let us know at [email protected]. Contributors to the column are Inland Empire professionals who are experts in their particular discipline.
