The number of loan products have increased over the past 20 years as economic necessity and a demanding public in need of specialization to solve financial circumstances. From personal loans, educational loans, business loans and already municipal loans. The entities that took part in the creation of the various financial products are actuaries, risk management professionals, “information and informatic engineers” and Wall Street amongst others. It was necessary to create, enhance or break down for better or for worse loan sets and products to keep money fluid in a different marketplace that required funds to address niche demographics.
- Personal Loans
identifying characteristics Loans – A identifying characteristics loan is just as it sounds. One applies for a loan and gives a identifying characteristics on a promissory observe to repay the loan in a certain amount of time. That amount of time is called a “loan term ” and may be from six months to five years. identifying characteristics loans usually require good credit and the criteria for loan approval are mostly based on the borrower’s credit and and to a lesser degree on assets. Not all identifying characteristics loans have the same parameters for qualifications. Some loans may require the borrower already with good credit to explain assets to show the lending institution for underwriting purposes. The institution may or may not place a lien on the assets but nevertheless wants to have documentation proving that there are indeed financial or physical assets owned by the borrower. identifying characteristics loans usually come with lower interest rates than other types of consumer loans like payday loans, credit card advances, title loans and some car loans. More on these topics later. Who are the lenders in identifying characteristics loans? They range from large subsidiaries of auto manufacturers to edges, savings and loan institutions, finance companies and payday loan companies.
Credit Card Loans – Credit Card loans or cash advances from credit cards are another form of personal loans. These quick loans are more freely obtainable to the general public and does not require a credit check. To acquire the initial card more than likely required a credit check or at the minimum the time of action of identification for secured credit cards. Credit card loans or advances usually come with higher interest rates and also other fees for having access to the cash. Various entities allow access to the credit card cash advances from bank tellers, check cashing facilities and automated teller machines (ATMs). The fees vary based on source used to access the funds. To lower the fees for cash advances some use check cashing facilities to have the card charged and receive cash back in turn for not having to incur the fees of ATM machines as cards are assessed a fee twice; first by the ATM company and also their bank. The interest rates on credit card loans or advances are usually higher than identifying characteristics loans. There are some states that have usury laws that have lower interest rates on credit cards. The loan or improvement on a credit card is not a “term loan” as with most identifying characteristics loans. It is more or less a line of credit the borrower has access to when they need it as long as there are funds obtainable on the credit card. Interest on consumer loans are no longer tax deductible as in past years. They were designed for short term borrowing needs but many have come to use their credit cards as a regular source of funds in tight economic times or between paychecks.
Wedding Loans – A comparatively new form of loan to carve out a niche for the lending industry and meet the needs of the increasing costs of weddings is the Wedding Loan. Because of the expense of weddings which can range into six figures, it sometimes requires a personal loan or already a business loan of the families involved to provide a proper wedding. Wedding loans can be secured (using assets for collateral) or unsecured (identifying characteristics loans) to acquire funds for the ever growing need to pay for the escalating wedding costs and all the various sets and products that a successful matrimonial ceremony would need. The credit criteria and the term may vary based on the amount needed and financial position of the people involved.
Payday or Cash improvement Loans is a fast growing market because it usually requires the least of credit criteria used for loan approvals. One can have bad credit for a quick and moment loan. Just having proof of income, proof of identity and a checking account is all that is necessary to obtain funds. already today many have checking accounts without checks one can nevertheless acquire a cash improvement by asking their bank to produce a one time check to give to the payday loan agency. Many payday loan companies and stores can get approval with no faxing of documents as they utilize other method for proof of income. Although payday loans come with very high annualized interest rates they sometimes are the only source of emergency cash loans for those in need.
Automotive, Motorcycle, RV (as a hobby means) and Boat Loans – These personal consumer loans are usually not identifying characteristics only loans but asset based loans. In other words a financial lien is placed against the asset to obtain a loan to buy or refinance the car, boat et al. These consumer loans may sometimes require a down payment of five to twenty-five percent to obtain enjoyment and use of ownership. Because these are not funds that are already obtainable as with credit cards they come with a “loan term” from one to six years depending on the choices of the consumer, the marketplace and the credit position. The interest rates can range from very low usually offered by manufacturers of cars, motorcycles, RV’s (as a hobby vehicles) and boats to very high if the borrower uses a credit card, a finance company or a “buy here – pay here” lender – or the car dealer who finances the buy of the car by giving the borrower a term of months and years to pay the balance of the loan off.
- Business Loans
SBA (Small Business Administration) Loans are loans that are given to small businesses which are not able to qualify for a loan from a financial institution for various reasons from without of business history, without of collateral to “obtain” the loan or not having an adequate credit history. The SBA is not a direct lender but acts as an underwriter on behalf of the bank that funds the loan for the business entity. If the borrower defaults on the loan the SBA will pay the bank a percentage of the balance for taking the financial risk to loan the funds to the business. There are various types of SBA loans which will not be covered in this article but a future article will explain in more detail.
traditional Business Loans are loans that are either unsecured meaning no asset is used to approve the loan or secured and called “asset based loans” where assets from inventory, equipment, accounts receivable or real estate are used for underwriting for loan approval. traditional business loans are given to business entities that have great banking relationships, established business credit history with trade lines with other businesses they do business with and good standing with various credit reporting entities like Dun & Bradstreet. There are short term loans with interest only payments with the balance due at the end of the loan usually referred to as a “Balloon Loan”. There are also longer term loans that are fully amortized (principal and interest in each payment) paid over one to five years or more.
Equipment Leasing is a financial instrument which technically is not a loan. Meaning based on tax ramifications and who owns the equipment – leasing is just that – leasing an asset owned by another entity. Leases are usually from large corporations or a bank. The lease term can vary from one to five years or more and there usually are tax benefits to the business entity in leasing new or used equipment.
Equipment Sale Leaseback is a transaction to use equipment that is already owned by the business or municipal entity to obtain funds for the present need for operations. The term can vary from one to five years and the amount of funds can vary based on credit history and a percentage of the fair market value of the equipment. The company then in turn leases the equipment back in usually a monthly payment. The company or the lessee typically has different choices on what they want to do with the equipment at the end of the term. They can roll the lease transaction into newer more updated equipment or software. They can buy the equipment for one dollar or ten percent of the fair market value of the equipment.More and more companies are leasing today as opposed to paying cash or using bank lines or loans.
Merchant Cash improvement is used by businesses that need fast cash and can’t qualify or don’t want to go by the time of action of getting bank approval for needed funds. A Merchant Cash improvement is also not a loan product but it is the selling of assets or credit card receipts at a discount. In other words the Merchant Cash improvement company buys the credit card receipts and then attaches a fee usually every time the business “batches”, settles or closes the day’s or week’s sales until the funds progressive are paid off. There is no term with merchant cash advances as it is not a loan so there is no set payment amount or period. The paying off of the progressive funds vary based on a the credit and debit card transactions of the day or week.
Factoring Accounts Receivable Invoices enables a business entity that typically has to wait 30 days or longer to be paid by other businesses or governmental entities. Again factoring is not technically a loan but a selling of invoices at a discount for cash now. In a typical transaction the company applies with a Factoring Company and the company looks chiefly at the credit of the other business or governmental entity that the company is doing business with. Based on that as long as the client of the company is a solvent business or government agency the invoices are bought and funds are dispensed to the business usually within three days of due diligence on the company they are transacting business with. In other words the funds are dispensed after there is a credit check and processing of the other company. The dollar amount that is progressive can vary from fifty percent of the invoice to eighty or ninety percent depending on various factors such as the size of the invoice to the credit criteria of the other company or governmental entity whether it is a city, county, state or federal agency.
Medical Factoring is a financial transaction that benefits medical entities like hospitals, clinics and various health care professionals that have to wait to receive funds for sets performed on patients. Like Factoring and Merchant Cash Advances Medical Factoring is the selling of assets in this case invoices for cash now. In many instances the health care industry receives payment from third party entities like insurance companies, Medicaid and Medicare and state entities that provide funds for those in need of medical procedures. The medical facility or specialized in turns sells the invoice(s) on a on going basis or one time for cash now. Once there is an interest is selling the receivables then a Factor steps into analyze the billing so that funds can be progressive. This course of action can vary in length but is usually shorter in length than the time of action of getting bank financing.
Contract and buy Order Funding allows companies to bid on large projects for governmental agencies, hospitals, universities, prison systems and municipalities or also to sell to larger corporations already if the business does not have the credit or bank approval or the wherewithal to service or fulfill a large contract order. Similar to Factoring which works hand in hand with buy Order Funding it is not a loan but a at the same time transaction that involves advancing funds based on the credit of the governmental agency or larger company and the size of the contract. The funds that are progressive are for the cost in completing the order of products or performing sets. So the profit that will be attained is not progressive but the costs as in raw and finished material, transportation, production, labor, skill and any other costs involved in completing the contract. Once the contract is completed or once an invoice is ready to be sent to the client a factoring company which is sometimes owned by the same company buys the invoice at a discount and the funds that would typically be progressive to the company are usually used to settle the amount progressive for the material and other sets that were needed to complete the order. Contract and buy Order Funding usually requires large transaction amounts as opposed to factoring that can be utilized for invoices as small as one hundred dollars. With the use of Contract and buy Order Funding companies that were locked out of the time of action of bidding on large contract s may become players in multi-million dollar deals.
Commercial Real Estate Sale Leasebacks are similar to Equipment Sale Leasebacks featured in this article. Instead of employing owned equipment to obtain cash when bank borrowing is not wanted or not obtainable the commercial real estate is used to access funds now. This can vary from office buildings, medical buildings, retail franchises, industrial buildings and manufacturing to large utility plants. This frees up cash “locked” away in real estate. Many entities find that at the present time the business they are in whether it is retail, manufacturing or another field that the holding of commercial real estate is not in their best financial interest for now. They prefer to put to use funds for their industry. So a retailer selling retails goods decides to focus on the retail operations and to lease the space because that real estate when factored into a myriad of calculations does not fit their financial goals during the present time. Yes the ownership of commercial real estate is an asset and can be used as a security for a loan but may also be viewed as a fixed non-performing entity that does not meet the needs of the business, organization, group or individual that owns the building. Commercial Real Estate Sale Leasebacks are another form of getting access to funds and has increased over the years.