Bank Loans

Bank Loans are the most familiar form of loan and usually have the lowest interest rates. The most common loans are term loans and revolving lines of credit. Lines of credit typically have a one year maturity while term loans last for 1 to 7 years. Many banks have a preference for loans secured by real estate or machinery and equipment. For most smaller mid-market companies, banks will require personal guaranties of the owners and senior, blanket liens on all assets of the company. Banks prefer floating interest rates, but fixed interest rates are also available. Fees are smaller than what non-bank lenders charge. Most banks describe themselves as cash flow lenders, but that can be a little misleading as they typically limit the loan amount to the adjusted value of the collateral. These adjustments might include a 15% to 20% discount on real estate, a 25% discount on equipment, a 15% to 25% discount on accounts receivable, and a 40% to 60% discount on inventory excluding work in process. Loans may also include other terms such as an interest only period, fixed principal payments, and earnings recapture.