WhiteKnight Solutions serves as a trusted financial advisor to businesses and professional associations. We provide our clients with "smart access" to money, helping you obtain the right financing needed to achieve your goals. Following are descriptions of the various types of loans that you may require to purchase new equipment, provide working capital, restructure existing obligations, or create a foundation for long-term growth.  WhiteKnight Solutions is on your side, providing you with reliable financial advice and assisting in making the best funding decisions for you and your business.

Working Capital Line of Credit  
A Working Capital Line of Credit is a short-term loan (typically one year) designed to satisfy a business's need for temporary and seasonal funding of operations in order to facilitate the normal production and operating activities. It is expected that a Working Capital Line of Credit will move up and down with the temporary and/or seasonal need.  Interest is only paid on the amount of the loan that is outstanding.  A Working Capital Line of Credit is typically collateralized by a blanket lien on the borrowing company's assets.

Asset-Based Loan 
This is similar to a Working Capital Line of Credit, except that the permitted outstanding loan amount is tied directly to the amount of specific assets, usually accounts receivable and/or inventory.  A lender will periodically monitor the amount of "qualifying" assets and limit the amount of loan outstanding to some pre-established percentage (the "advance" rate) against the assets.  For example, if the pre-determined "advance" rate of accounts receivable is 80% and there are $100,000 of "qualified" accounts receivable, the lender will allow an outstanding loan amount of $80,000.  Similarly, with a 50% "advance" rate against "qualified" inventory, $80,000 of inventory would support $40,000 of loan.

Factoring 
Factoring is often used synonymously with accounts receivable financing. Factoring is a form of commercial finance whereby a business sells its accounts receivable (in the form of invoices) at a discount. Effectively, the business is no longer dependent on the conversion of accounts receivable to cash from the actual payment from their customers, which takes place on typical 30-to-90-day terms. Businesses benefit from the acceleration of cash flow by obtaining cash from the factor equal to the face value of the sold accounts receivable, less a factor's fee.

Factoring is considered off balance sheet financing in that it is not a form of debt or a form of equity. This fact makes factoring more attainable than traditional bank and equity financing.

There are usually three parties involved when an invoice is factored:

• Seller of the product or service who originates the invoice
• Debtor is the customer of the seller (i.e., the recipient of the invoice for services rendered who promises to pay the balance within the agreed payment terms)
• Factor (the factoring company)

Term Loan 
A Term Loan is, generically, a loan having a term of greater than one year.  There are Term Loans for specific purposes and are referred to with regard to those specific purposes:

Business Term Loan
A Term Loan to a business is typically to provide capital for the business to grow and allow for repayment over a period time.  Funds provided by a Business Term Loan can be applied to increase working capital, purchase assets, or add staff.  It will have an amortization period of five to ten years and will be collateralized by the assets of the business.  In addition, a lender may require certain covenants (conditions/restrictions) that the business must adhere to during the term of the loan.  For example, a minimum dollar amount of tangible net worth may be required, debt to equity may be limited, the owners may be restricted from distributions from the business, etc.

Installment Loans
An Installment Loan is commonly used for the purchase of a specific asset, such as machinery, vehicles, computers, office furniture, etc.   The term of the loan may be from three to seven years, depending on the perceived useful life of the asset.  The lender will place a lien on the asset purchased.  When obtaining an Installment Loan, the borrower will typically have to put some amount of cash down towards the purchase price, and the balance is paid back in equal monthly installments.

 

Real Estate Mortgage Loans
Real Estate Mortgage Loans are used for the financing of real estate property (business or residential).  They generally have a 15 - 30 years amortization and are repaid with equal monthly payments.  Such loans are typically used when purchasing a real estate asset.  A lender will appraise the real estate to be financed and will allow a certain percentage of that value (Loan to Value Ratio) to be financed. 

Lease Financing
While technically not a loan, a lease can be considered a financing method.  Typically, a lease is used to finance a specific asset, similar to that described in Installment Loans.  Unlike an Installment Loan where the borrower owns the asset and obtains financing to pay for it, in a lease, a third party owns the asset and the user pays the third party to use it.  Assets can be leased for up to ten years, depending on the age and useful life of the asset.  Most assets can be financed (leased) for 100% of the cost, including shipping and installation where necessary.