Financial Poise

What Kind of Loan?

A free on-demand webinar from Financial Poise.

Webinar Overview

Susbcribe to The NLR

In a broad sense, most loans can be divided into two basic types: asset-based loans (ABL) and cash-flow loans (CFL). An ABL is made by a lender who underwrites the loan primarily by valuing the company’s assets, such as accounts receivable (A/R) and inventory. An ABL lender underwrites a loan based on the ability to liquidate collateral should it need to. A CFL lender, in contrast, while also secured against the borrower’s assets, underwrites the loan primarily based on the cash flow and general creditworthiness of the borrower.

The distinction between these types of loans is only the beginning of understanding what kind of loan is at issue (and for that matter, what kind of loan is appropriate for a given situation). Consideration should be given, and this webinar touches, on the following:

Loan Purpose

  • Working Capital vs. Long-Term Investment: Short-term loans for operational needs vs. long-term loans for capital expenditures or acquisitions
  • Expansion vs. Turnaround: Loans geared toward growth versus those intended for restructuring or recovery

Secured vs. Unsecured Loans
Secured loans backed by specific collateral vs. unsecured loans relying on the borrower’s creditworthiness and financial strength

Fixed vs. Variable Interest Rates
Loans with fixed interest rates that remain constant throughout the loan term vs. variable rates that fluctuate with market indices

Loan Structure

  • Term Loans: Lump sum disbursed upfront with structured repayments
  • Revolving Credit Lines: Borrowers can draw, repay, and re-borrow within an agreed limit
  • Bridge Loans: Short-term funding to bridge financial gaps until longer-term financing is secured

Repayment Schedule
Standard amortization schedules with regular payments vs. balloon payments or flexible schedules tailored to cash flow cycles

Industry-Specific Loans
Loans designed for particular industries, such as agriculture loans, healthcare financing, or real estate loans

Lender Type

  • Traditional Bank Loans: Typically more stringent in underwriting
  • Non-Bank Lenders: Often more flexible but potentially more expensive
  • Peer-to-Peer Loans: Crowdfunded or marketplace loans with unique terms

Loan Terms and Covenants
Compare restrictions, such as financial covenants (e.g., debt-to-equity ratios), use-of-funds restrictions, and prepayment penalties

Government-Backed vs. Private Loans
Loans backed by government programs (e.g., SBA loans) offering favorable terms vs. privately funded loans with fewer restrictions

Special Features and Flexibility

  • Convertible Loans: Debt that can convert into equity
  • Interest-Only Loans: Loans with interest-only payments for a set period
  • Subordinated Loans: Loans that rank below other debts in case of liquidation

This webinar takes the audience through a guided tour of the various borrowing options available to businesses, from both a business and legal perspective, to paint the overall landscape of the different types of lenders that exist and to provide a framework for understanding what type of lender and loan may make sense for any particular borrower.

Other Webinars in this Series


About Financial Poise Webinars  •  Webinar FAQ  •  Disclaimer