Corporate Loans & Financing Options: S-Corp Term, Credit Loans & More

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Corporate Term Loans

As the old saying goes, you must spend money to make money. Nowadays, businesses are putting way too much focus on the different ways to cut costs. However, it’s one thing to manage your budget wisely and another thing to not spend at all. It doesn’t matter if you are an established corporation or a start-up business, funding is, and always will be, something that you need to ensure that your operation runs as smoothly as possible.
But what if your profits are thin as it is and you don’t have enough money to invest back into your company, how would you succeed? What if you don’t have access to the necessary capital to stay competitive and foster growth? Fortunately, corporate loans exist.

What is a corporate loan?

Like most business loans, corporation loans or corporate loans can help cover unexpected expenses, fund expansion projects, pay for additional supplies and inventory, or upgrade a company’s marketing and advertising capabilities to reach new customers. Without corporate loans, most companies might not have enough money to pay for basic operational expenses which may affect a company’s day-to-day operations.

Who is eligible to apply for a corporate business loan?

According to the SBA, businesses that are eligible to apply for a business loan are those that operate for profit, engaged in or propose to do business in the U.S. or its territories, have reasonable owner equity to invest, and have alternative financial resources, including personal assets, before seeking financial assistance. While there are a lot of varieties to choose from, some of the most popular types of corporate loans are lines of credit (or corporate credit loans), corporate term loans, and Small Business Administration (SBA) loans.

The Most Common Corporate Financing Options

It’s a known fact in business that money is needed to foster growth. This could mean funding new ventures, hiring more staff, and improving existing products. The reality, however, is that not all businesses have the financial freedom and capability to constantly redirect a portion of their profits back into the company. The next best thing that corporations can do is to equip themselves with enough knowledge about the variety of corporate financing options that they can apply for. Note that these financing options are different from one another, it’s now up to you, as the business owner, to determine which type of funding best meets your corporation’s needs.

Corporate Term loans

A term loan is an agreement between a borrower and a lender where a lender provides a lump sum to the borrower and the borrower pays that money back in steady increments over a certain period of time. The main difference between corporate term loans and personal loans is that instead of lending to an individual, lenders are dealing with a business entity. Corporate term loans can be used to buy equipment, property, or real estate or to improve a business’s functions.

How do corporate term loans work?

Depending on your loan agreement with your lender, corporate terms are usually repaid according to a predetermined repayment schedule. One advantage of corporate term loans is that borrowers can easily calculate the cost of interest based on the total amount borrowed. This makes it easier for borrowers to predict their monthly payment costs regardless if the loan carries a fixed or variable interest rate.

A Quick Guide to Corporate Term Loan Requirements

Time in business
Industry
Collateral
Credit score (both personal and business)
Cash flow
Tax returns (both personal and business)
Disclosure of other debt

Corporate Credit Loans

When it comes to corporate financing options, a corporate credit loan or a corporate line of credit works best if you have to cover an unexpected expense or pay for an inventory restock due to an unforeseen increase in demand. This is due to the fact that a line of credit is similar to a credit card in which only a limited amount of funds can be accessed during a certain period of time.

How do corporate credit loans work?

The great thing about corporate credit loans is how flexible it is. As the borrower, you have the option to access funds that you can use whenever and however you wish. And, with a line of credit, businesses can continue accessing funds as needed as long as you make on-time payments and don’t exceed your credit limit. The amount of money spent can either be repaid immediately or over a predetermined payment schedule. Like other loans, a line of credit also charges interest.

A Quick Guide to Corporate Credit Loan Requirements

Collateral (especially for larger lines of credit)
Time in business
Credit score (both personal and business)
Tax returns (both personal and business)
Bank account information
And other relevant financial documents

Shareholder Loans to a C corporation

For legal and taxation purposes, a C corporation separates the owner’s and the shareholder’s assets and income from that of the corporation. Like S corporations and limited liability companies (LLCs), C corporations separate a company’s assets from its owners with a different legal structure and tax treatment. Now, this is where it gets interesting. Did you know that shareholders loan money to their corporations in order to keep business operations going? However, certain rules and regulations in the Internal Revenue Code (IRC) should be adhered to in order for loans to be treated as bona fide. According to Section 7872(f)(5) of the IRC, shareholders to corporate loans can be classified as a Demand Loan or a Term Loan. A demand loan is defined as:

A loan that is payable in full at any time at the demand of the lender, or
To the extent defined by the regulations, a loan with an indefinite maturity.

Meanwhile, a Term Loan is defined by the IRC as any loan that is not a demand loan. When shareholders provide a loan to a corporation, it is classified as a below-market loan. Below-market loans can be demand loans where interest is payable on the loan at a rate less than the applicable federal rate as well as term loans where the amount of the loan exceeds the present value of all payments due under the loan.

Shareholder Loans to an S corporation

The IRS defines S corporations (or S-corps) as “corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates.”

When it comes to shareholder loans to an S corporation, shareholders can provide a loan to the business to cover emergency costs or generate more working capital. This means that in a situation where a quick influx of money is needed, a loan from a shareholder may seem like the best solution considering all the other financing options may take a while to get approved.

*Keep in mind that the requirements listed in this section may vary from one financial institution to another. Check your prospective lender’s requirements to make sure that your loan application is complete.

How do you apply for an S-Corp business loan?

Applying for a business loan as an S corporation depends on your prospective lender. For instance, SBA-approved lenders offer a wide range of products that you can avail of. The best advice that we can give you is to compare the rates, terms, and fees that your prospective lenders give you and choose which makes the most sense and would best meet your company’s needs.

Looking for a simple alternative to corporate financing?

If you want a quick and easy loan application process, try PrimeRates. PrimeRates is an online platform that enables consumers and businesses to learn more about their financing options. It also offers corporations looking for loans the chance to analyze customized offers that would best fit their current funding needs.

How PrimeRates Works

PrimeRates provides access to personalized business loan offers through our simple and quick pre-qualification application. Once you’re pre-qualified, you can select the best offer for you and finalize the business loan application with the lender.

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