• Loan is borrowed funds, normally bank loans. It includes short-term loans, repayable in less than three years; medium-term, generally repayable in three to five years; and long-term loans, repayable in over five years. It also includes secured and unsecured loans.
• Loan financiers do not normally participate in management. They charge interest and take collateral security to cover themselves should the business fail.
• Loan is growth finance. It is recommended when a business is generating sufficient cash flow to enable meet loan repayments. The principle is that each loan justifies itself, in that the loan should enable generate more revenue than it takes to repay it.
• In matching costs and finance, long and medium-term loans are to be used for long-term costs, and short-term loans for short-term, operating, or working capital costs.

Mezzanine Finance

• Mezanine finance is a loan with an option to convert to equity. If there is default or the business is unable to pay, the amount is converted to equity for the lender. Mezzanine finance helps reduce cash outflow and may involve less security. The conversion to equity, however, dilutes or reduces the ownership interest and control of the primary owners and needs to be carefully considered.