RESOURCES
Types of Financing
Use this section to learn more about business loans and specific financial products that might be right for your company.
Revolving lines of credit are the most common and least expensive form of business loan for small- and mid-sized companies. Companies typically enter into revolving facilities to fund their working capital, which is the amount of current assets (cash, inventory and receivables) in excess of current liabilities (items such as payables).
Senior term debt is the second most common form of financing for a small and mid-sized companies. Senior term debt is typically lent against the collateral value of property, plant and equipment. Senior term debt comes in many varieties and there are many sources of this type of financing. It is typically the second most expensive form of financing.
Subordinated debt financing typically includes both debt and equity. There are dramatically fewer sources of subordinated debt than there are of senior debt or equity, so it is often considered to be specialty financing. Subordinated debt is substantially riskier than senior debt since the lender generally has less right over collateral and cash flow than the senior lender. As a result, subordinated debt is more expensive financing than either revolving lines of credit or term debt. Lenders usually require equity, generally in the form of warrants, to augment what they earn in interest income.
Equity financing incurs the greatest risk of all capital on the part of the investor. Equity investors demand high returns, commensurate with that risk. This sections meant to cover equity financing that is available for management buyouts, growth financings, acquisition financing, employee buyouts, ESOP financing and recapitalizations.