Lending is the act of temporarily advancing an individual, a group, a company or government money with an expectation of being paid back. The individual or business that advances money is called a lender. Usually, the money is paid back with interest on top. Hence the reason for advancing money is purely business-related and the greater the risk you are, the higher the interest and definitely the higher the stake for the lender. However, the government usually has some regulatory provisions laid down to protect the consumers from frivolous lenders. Every type of loan has its terms.
However, this is not the only factor that differentiates one kind of financing from another. In this article, different types of financing shall be discussed.
- Alternative finance
This kind of business loan is designed in such a way that it does not originate directly from the mainstream or traditional lending channels such as banks and credit unions. Banks usually provide favorable terms such as lower rates and manageable terms of payment but it has some stringent conditions and bottlenecks which make small and medium-size enterprises not able to afford them. Alternative financing has, therefore, come in handy to fill this gap in the market. They provide loans at lesser criteria and at faster rates. And, the good thing is that you can get these loans to do anything with them including buying groceries, starting a business, auto, etc. also, if you have been summoned by the civil court of justice over debts, you can use alternative business loans to clear you credits and keep your good history intact.
- Term loans
Term loans are also known commonly as unsecured loans, cash flow or bridging loans. They are categorized using their ways of performance. Usually, the lender, such as Advance Planners Credit, determines the amount payable by calculating the amount of interest the money is likely to give back, then a fixed timeline is set for you to ensure to have returned the cash in full. These kinds of loans are majorly reliant on your credit ratings and the history of credit you have accumulated over time. However, some require some form of security and guarantees on a personal level.
- Invoice loans
Invoice financing is a form of lending where the lender buys some unpaid invoices from the borrower so that when the clients finally pay, the lender remits the payment to the borrower having deducted the lenders’ fees. This type of lending is ideal for businesses that deal with credit sales and purchases. The lender solves the borrower’s cash flow problem at a fee. In other words, the loan is taken against the accumulated unpaid invoices. Invoice loans are further categorized into two; confidential discounting and factoring. For invoice discounting, the lender advances you some percentage of the money after you sell these invoices, and after the clients pay, the lender gives you the remaining percentage minus the lending fees.
The reason this type is called confidential is that the customer usually doesn’t have to know you are dealing with invoice financier. So, you have to go after the client’s payment yourself. On the other hand, invoice factoring involves receiving financing against the client’s invoices. The lender finances these invoices at a discount amongst other terms that are specified before the dealing. Here, the client knows that you are financing the invoices. However, you can limit the exposure of a larger client. Also, you can selectively ensure your invoices against potential bad debts.
- Asset finance
Asset finance is majorly categorized into two; asset refinances and hires purchase and equipment leasing. Asset refinance involves financing using valuable business assets as security. Contrary, hire purchase and equipment leasing loans are used to fund newly acquired items or used equipment in the business. Additionally, these kinds of financing are used to finance anything, be it plant machinery, business motor vehicle, telecommunication equipment, etc.
- Property finance
It is widely regarded as property development loans. They include commercial mortgages that work for business people who are looking into growing their businesses or have cannot bear anymore the costs of rent and leases on their business premises. Commercial mortgages are further subcategorized into owner-occupied, residential purchase to-let and commercial acquire to-let. The other type of property financing is auction finance which helps developers acquire prime property from a motivated seller at a lower rate than the prevailing market values. The financiers release the funding in record time because of the tight selling schedules in auctioneering.
Mostly regarded as peer-to-peer financing, it is the online financing that involves the financiers and the developers being linked by a website. The lenders can end up acquiring some shares in the business in exchange for funds or they may deduct a percentage of the funds in the form of fees. Therefore, the relationship attained in the end is purely mutual beneficial and without middlemen.
- Merchant advances
This form of lending is ideal for busy organizations which receive payment through cards such as the cafes and stores. The lender advances your cash against the expected future sales on cards.
- Pension led loans
This kind of financing can as well be regarded as alternative financing. Although it is pretty much unpopular since it’s a new product on the market. You can take out a loan on your pension for your business or individual use. This then provides the two subdivisions of pension led loans; commercial and private. Pension led funding is a complex field. You have to educate yourself first before trying out this kind of financing.
- Secured loans
Secured loans are basically the kind of financing that requires you to have some personal guarantee in the form of an asset to secure your loan. For instance, a mortgage, motor loans, etc. the rates of interest considerably depend on the owner’s equity in the asset security presented as the appraisal.
Lending, also known as financing, is advancing money to a borrower with the intent of getting it back within the agreed time limit. There are many types of lending as n provided by the wide lender market consisting of banks, credit unions, hard money lenders, private money lenders, family and friends, online lenders, etc. they include alternative financing which can be both private and commercial, property and asset financing, closed-end loans also known as secured loans, merchant card advances, etc.