Which loan would you like?
If a company needs liquidity, a loan is usually the only option. If you take a closer look at the topic, you will quickly notice that there are a variety of different types of loans. But which one is the right one for my needs?
Unfortunately, choosing the right loan is often not quite so easy. Numerous types of loans, different maturities, interest rates and collateral create a wealth of options between which companies and private individuals must carefully weigh up. Clear objectives, realistic financial planning and a good understanding of the respective advantages and disadvantages help to avoid poor decisions and to find the loan that really suits the individual situation. In this text, we will provide a summary of the common types of loans and their use, advantages and disadvantages.
Overview of loan types
Lombard loan
Description
The Lombard loan is a short-term form of credit in which securities serve as collateral, and the credit line is flexibly adjusted to their performance.
Application
Provision of credit funds against pledge of securities or valuables (securities or exchange-traded loans). This is typical for companies that need liquidity in the short term and can contribute to portfolios as collateral.
Avantages
Fast availability, often flexible access to additional funds. Credit line adjusts to the amount of collateral pledged. Interest rates are often lower than for unsecured loans, as there is collateral.
Disadvantages
Securities price fluctuations influence credit limits and loan-to-value ratios. Risk of margin calls in the event of falling collateral values. Costs for custody, custody fees and any investment services.
Current account credit (current account/overdraft)
Description
The overdraft facility is a revolving form of credit on the company account, in which the available credit line is used flexibly and made available again and again through ongoing deposits and withdrawals.
Application
Working capital financing for ongoing business expenses (payment of transactions, suppliers, salaries). Credit line is regularly used for payment transactions.
Avantages
Instant access to funds, flexible to use when needed. Interest only on the amount used, not on the entire credit line. Simple billing system via the business account.
Disadvantages
Often relatively high interest rates for regular or long-term use. Temptation to take on debt due to easy availability; difficult capital structure. Creditworthiness and banking policy influence availability and conditions.
Investment loan
Description
The investment loans are earmarked financing that companies provide for the procurement of long-lasting assets such as machinery or real estate and usually has a fixed term and interest rate structure.
Application
Financing of long-lived assets (machinery, equipment, IT infrastructure, vehicles). Terms are usually very long, often 3–10+ years.
Avantages
Interest and repayment structure can be planned; Asset serves as the collateral base. Contribution to the strategic capital delivery and performance of the company. Often better conditions than unsecured loans; tax write-off possible.
Disadvantages
Capital commitment and higher running costs over a long period of time. Loss of value of assets can affect residual values. Higher formal requirements (expert opinions, guarantees, etc.) and dependence on creditworthiness.
Framework credit
Description
Framework credit is a flexible form of credit in which credit is provided up to a fixed credit limit, and you only pay interest on the amount used, whereby the amount used can be returned to the limit at any time.
Application
Flexible, recallable credit line outside the current account nature; used for variable financing needs, projects or seasonal fluctuations.
Avantages
High flexibility with predictable credit line. Interest is only accrued on the amount drawn (like the revolver principle). Well suited for unforeseen expenses or larger individual projects.
Disadvantages
Often fees or commitment of interest despite periods without use. Conditions strongly depend on creditworthiness, terms, and bank policy. Possible costs also arise if the line is not used.
Business loan
Description
A Business loan is short-term financing that companies use to cover ongoing operating costs, enable supplier payments or bridge bottlenecks, often as a line of credit with interest only on the amount drawn.
Application
Covering ongoing, short-term financing burdens (materials, salaries, etc.).
Avantages
Flexible; aims at liquidity, fast availability.
Disadvantages
Mostly short terms; Interest rate may be higher; Risk of overdraft.
Line of Credit / Revolving Line of Credit (KKL, Revolver Credit)
Description
A credit line, especially a revolving credit line, allows you to flexibly use credit up to a fixed limit and make it available again in full or in part after repayment, with interest only accruing the amount actually drawn.
Application
Flexible access of funds up to the credit line; regular repayment possible.
Avantages
High flexibility, interest payment only on the amount used, planning security.
Disadvantages
Framework credit fees, regular checks/checks by bank; interest rate varies.
Investment credit (investment financing)
Description
An investment loan is used to procure assets that can be used in the long term, such as machinery or buildings, and is usually repaid over several years with fixed repayment and interest schedules.
Application
Financing of long-lived assets (machinery, equipment, real estate).
Avantages
Fixed terms, amortized costs, if necessary, secure repayment through benefits.
Disadvantages
Higher amounts, longer commitment, credit check strict.
Leasing (asset leasing, business leasing)
Description
Leasing is a utilization and financing model in which the lessor allows the lessee to use assets (asset leasing, e.g. machinery or vehicles) in exchange for regular payments, without the acquisition of ownership taking place immediately; at the end of the term, there is often an option to take over, extend or return them.
Application
Procurement of assets without full capital commitment; Use vs. ownership.
Avantages
Little equity, tax advantages, maintenance/service often included.
Disadvantages
Total costs are often higher than purchase, commitment to vendors, no ownership at the end (depending on the model).
Factoring
Description
Factoring is financing in which a company sells its trade receivables to a factor, which immediately pays out a large part of the receivables amount, takes over the collection and thus improves the payment risk and liquidity.
Application
Pre-financing of receivables to improve liquidity.
Avantages
Rapid inflow of liquidity, reduction of the risk of default, balance sheet relief.
Disadvantages
Costs (factor fees), possible influence on customer relationships, less profit per invoice.
Bank loan with earmarking / special purpose credit
Description
A special purpose loan (earmarking) is a bank loan that is granted for a specific purpose and depends on the use of funds used and, if applicable, declarations of the intended purpose.
Application
Financing of specific purposes (e.g. vehicle fleet, investments, research).
Avantages
Lower interest rates, clear earmarking, better planning.
Disadvantages
Limited flexibility, proof of use required, stricter earmarking.
Export credit / foreign trade financing
Description
Export credit or foreign trade financing comprises financing instruments that support exporters and importers in cross-border transactions by extending payment terms, providing pre-financing or receivables financing and mitigating risks through insurance or guarantees.
Application
Financing of export companies (pre-financing, payment hedging, risk minimization).
Avantages
Protection against payment risks, better credit conditions abroad, export promotion.
Disadvantages
Complex product variety, regulatory requirements, costs.
Promotional loan
Description
A promotional loan is a loan offer from state or public development institutions at favorable conditions, which specifically supports sectors of the economy or projects and is often associated with interest subsidies, longer terms or special repayment regulations.
Application
Financing of investments, digitalization, sustainability, start-ups, etc.
Avantages
Low-interest conditions, long term, grants/cover guarantees possible.
Disadvantages
Application processes are time-consuming, bureaucratic effort, and eligibility criteria.
The choice of the appropriate type of loan therefore depends primarily on your personal starting position and individual needs. It takes enough time to make the right choice.
With an SME loan from Kamuno, you enjoy maximum flexibility and do not have to submit a new application if you need further liquidity. Fees only apply to the amount claimed, regardless of the credit line. Kamuno's SME loan allows you to react flexibly to changing situations without further bureaucratic effort.