Commercial Banks
Commercial banks are the primary source of unsecured debt and may loan up to 80% of the required working capital and up to 100% of the company's net worth as appraised by the lender. Banks are also a major source of secured debt, making asset-based loans, in which the loan is made against a specific piece of machinery or equipment, or collateralized by accounts receivable or inventory. Commercial Banks assess a loan origination fee from 1-3% of the loan amount.

Commercial Finance Companies
Like banks, commercial finance companies can provide businesses with revolving secured loans against accounts receivable and inventory, and with term loans made against fixed assets. Most commercial finance loans are revolving lines of credit with floating interest rates based on prime plus a margin.

Insurance Companies
Insurance companies are participating in all levels of financing except short-term revolving debt. They charge interest based on the Treasury rate plus a risk premium and are prohibited by regulation from charging commitment fees on their financings. Insurance companies are also pursuing equity positions in growing companies through convertible preferred stock and warrants or subordinated debt with a common stock conversion privilege.

Pension Funds
Pension Funds participate in subordinated debt and equity financing with terms similar to those required by insurance companies. These funds are prohibited by law from charging financing fees.

Sellers of Companies
Seller financing is useful because it allows the buyer to reduce cash investment in situations where traditional lenders would not be willing to provide additional financing. A seller may be willing to finance part of the transaction if the seller receives a premium over an all cash price or if the seller is convinced that the deal will not be completed without the seller's participation and if the seller believes in the buyer's ability to operate the company and repay the loan. This financing is generally in the form of long-term subordinated notes and may include balloon payments or deferred principal.

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