What are Industrial Loans?
Industrial loans in Phoenix, Arizona are debt-based funding arrangements between a financial institution and a business. These loans finance the equipment and operational costs of the production. Morris Banks, a category of banks; offers industrial loans. Owned by non-banking companies under section 2(c)(2)(H) of the Bank Holding Company Act, they function under sections 23A & 23B of the Federal Reserve Act. These banks are under government scrutiny and state-chartered while the parent companies (such as GM, GE, Walmart, etc.) are not.
The difference between the commercial banks and Morris banks is that they accept deposits to raise the capital and sell it as investment shares or certificates. These loans on certificates are secured by a third party that acts as a guarantor for this loan.
Period
These loans may be short-term (1-2-year line of credit) or long-term (30-year line of credit) loans depends on the funding needs. The interest rates are based on prime rates or LIBOR rates. A business can secure these loans against a collateral and cash flow.
Types
As industries are heterogeneous, so are the loans. They may differ in tenure, structure, pricing and monitoring; among other elements.
Unsecured loans are offered after assessing the company’s history, owner’s guaranty (liquid net worth) and expected cash flow. The bank analyses the current cash flow to understand the company’s cash conversion cycle.
Asset based finance is offered against an advance rate calculated using a borrowing base formula. These are a fixed percentage of qualified receivables and inventory subject to monitoring.
The Leasing and equipment finance is a form of secured lending to buy equipment. Banks offering leases of least or zero residual value. The interest rate is higher but the monthly payments are reduced.
Small Business Administration loans offer a government guaranty to encourage the banks to fund companies. A centralised expert checks documentation for consistency and completeness before passing the loan.
How Do I Qualify for an Industrial Loan?
A Good Credit for personal and business accounts helps to get the loan at the best interest rates. The difference in the loan amount and rates can be significant for good and poor credit borrowers. It helps to co-sign a partner with good credit or referral to get the best deal.
A Large Asset Base helps get loans easily. The assets may be machinery, office equipment, real estate, etc.
A business in Information Technology may even put its intellectual property as an asset if it has a fair market value. Collaterals are usually required for start-ups and low-rate investment debts in the future. These collaterals can be personal assets though not preferable.
A Solid Business Plan that reflects and estimation of profitability. Sit with your financial planner and devise a well-written plan. It should cover the set-up, the estimated costs and a rate of return on investment.
Industrial Experience is a must to draw up a credible business plan. The contacts and knowledge of the industry offer insights into the business. This helps to draw up the business plan and estimates for the loan. Most lenders will interview the board of directors or founders to discuss the profitability. All the above build the lenders confidence in your business and rate of lending.
Contact Us today and talk to us about applying for an industrial loan. We offer these loans and other commercial based loans, like construction loans in the greater Phoenix metro.