[3] Methods of business loan assessment, monitoring, risk management, and pricing affect the growth and performance of banks and other lenders.
[5] Mezzanine finance effectively secures a company’s debt on its equity, allowing the lender to claim part-ownership of the business if the loan is not paid back on time and in full.
[6] This allows the business to borrow without putting up other collateral, but risks diluting the principals’ equity share in case of default.
[citation needed] With factoring, the finance company charges interest on the loan until the invoice is paid, as well as fees, and the finance company takes ownership of the debtor ledger and uses its own credit control team to secure payment.
[8] Nonbank lenders that make small business loans have doubled their outstanding portfolio balance every year since 2000.
With a secured loan, the borrower pledges an asset (such as plant, equipment, stock or vehicles) against the debt.
Unsecured loans do not have collateral, though the lender will have a general claim on the borrower’s assets if repayment is not made.
UCC filings may affect the business credit score and may make it more difficult to obtain subsequent financing.
[citation needed] Many lenders require principals with 20% or greater ownership in the business to provide a personal guarantee.
[citation needed] In May 2016, changes to the Member Business Lending rule by the National Credit Union Administration board further improved these loans, by allowing credit unions discretion in obtaining a personal guarantee from a borrower.