Term Loans

Term loans are granted to borrowers on a pre-determined term. They typically have a fixed interest rate with a monthly or quarterly repayment term.  Term loans can be suitable for commercial and mortgage financing.

Types of term Loans:

Short-Term Loans: Such loans can be for less than 3 years, generally repaid in monthly installments and sometimes with balloon payments to ease a business cash flow. Such loans can be used to finance the daily working capital or finance assets such as machinery that have a life of around 1 to 3 years.

Companies at one time or another might encounter unexpected problems or opportunities that require money; short-term financing is the usual answer.

Short-term loans advantages:

  • Can be written, approved and disbursed quickly

  • Short-term loans require little paperwork

  • No need to burden yourself with long-term obligations

  • Short-term loans usually do not require collateral or might need little collateral

  • Short-term loans are considered as temporary financing and carried under current liabilities and is not considered part of a business capitalization

Long-Term Loans:  Loan-term loans are set for a term more than 3 years and can reach up to 20 years. Payments can be scheduled and anticipated. Interest rates are usually lower than short-term loans and typically require quarterly or monthly payments derived from profits or cash flow. Such loans must be collateralized by the business assets.

 Advantages of long-term loans:

  • A long-term loan means that installments will be less, although it will take longer to pay off the loan.

  • Lower interest rates

  • Long-term loans will be structured according to the business needs and abilities

  • Longer repayment allows the business or person to grow financially as a result of the upfront investment made

  • Long-term loans for real estate can reach up to 30 years

  • Long-term loans are suitable to those with limited income

Generally speaking, both short-term and long-term loans are appropriate for established businesses that can demonstrate the ability to pay the interest rate and principal payments.

Venture Capital

Venture capital is an excellent alternative form of financing a business, or better, a venture, mainly suitable for small and young companies that have the potential for growth. In cases where banks take a too conservative approach venture capital institutions might be able to provide the financial backing required to still put business plans into action.

Venture capital enables a small business to expand and become big enterprise. Unique new ideas can be realized. But as usual, also in venture capital, the first step is the most difficult one. An application for venture capital has to be made in a most sophisticated manner.

Venture capital institutions offer not just capital sources but also economic resources. Many ventures capitalist are professional business people from all types of business and industry and can contribute into any business they invest in by many ways.

Whether private or institutional venture capital sources, they will invest with high level of risk. The risk is taken in the hope that the return rate on the investment will be high and will justify the entrepreneurial risk. Venture capital invests in initiatives in research, developments and other business innovations. Usually, real estate is not financed by venture capital.

Venture capitalists are especially interested in businesses with global potential and international character. As a rule, it should be possible to make the highest possible level of profits out of a minimum of investment capital. Venture capital is not a short-term participation, but it has to be considered as a medium-term partnership of 5 to 7 years. It is a temporary but active participation, normally a minority partnership. This partnership may even extend to an advising and supporting of management and marketing.

Venture capital institutions are looking for a business with a good product or service, a market where they business can gain a protected position, high margins of profit possibilities and, of course, an innovative management team with appropriate experience and qualifications to make things happen according to a business plan.

Their investment conditions include:

  • A strong, committed and of proven ability management team

  • Sound business plan

  • Possibility of a market share

  • Innovative general business policy

  • High profit potential

Venture Capital Finance Stages:

  • Seed Capital: This is the financing of the development of a business

  • Early Stage Financing: Financing of the first growth of a company

  • Growth Capital: Financing of the intermediate growth

  • Business Expansion Scheme – BES: Financing of sales and product expansion

  • Development Financing: Financing of new project and developments

  • Management Buy-Out – MBO: Financing of the takeover of the company by members of the staff

  • Management Buy-In – MBI: Financing of a takeover with subsequent replacement of the present management

Advantages of Venture Capital Financing

  • Venture capitalists can introduce the business to an professional network of strategic partners

  • Easy exit plan

  • Venture capitalists are ready to take control of a business if the management is unable to drive the business

  • Venture capital financing allow people to build their business with the money of other people

Commercial Real Estate Finance

Commercial real estate financing is another form of financing that involves a loan made to a business with the real estate or other fixed or liquid assets been offered as collateral. Commercial real estate financing is not like residential financing as lenders will be looking at how much the property is worth and how much will make in the future. This means that lenders will be less concerned with the current value, but will be much more concerned with the future possible worth.

Commercial real estate financing is different from residential real estate financing as with residential real estate you will looking on to single family homes, small apartments and duplexes, while with commercial real estate you will be looking on to office buildings, warehouses, industrial complexes and more.

The typical loan term for commercial real estate financing is a 10 year loan term with the possibility to get it up to 30 years. Financing can be made on equity or debt terms. The commercial real estate financing availability changes with market conditions and the business applicants own circumstances.

Commercial real estate property may include but not limited to:

  • Office buildings

  • Mixed-use buildings

  • Industrial/manufacturing buildings

  • Apartment buildings

  • Condominiums

  • Heath care buildings

Advantages of commercial real estate financing:

  • Retain ownership of the property

  • Suitable for refinancing of current debt

  • It is tax efficient as interest payments are tax deductible

  • Repayments of a commercial real estate finance are similar to paying rent

Residential Real Estate Finance

Mortgage finance can be made available for purchase or re-mortgage of residential properties. This can be for either owner occupation or investment purposes. In residential financing, lenders will not be concerned with how much the property will make in the future as generally it will appreciates over time

For properties worldwide, financing can be made with the following parameters:

  • Loans from $2 million and up to $20 million

  • Financing can be made for single purpose companies

  • Maximum loan to value of 80%

  • Loan periods will be structured to suit individual circumstances

  • Interest only loans can be considered

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