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Quick Guide of Financing Options for Small Business Owners

Guide to Financing Options

If you’re a small business owner, you know how important it is that you have funds on hand in order to grow or expand your business. Small business loans are an excellent way for you to get the money you need to achieve many of the dreams you have about your business and its future. However, the process of finding and applying for small business loans can be incredibly complicated. If you’re feeling overwhelmed over how to begin tracking down the right small business loan for your business, don’t despair. We’ve broken down some of the most common types of financing options for small businesses, so that you can begin the process of obtaining the right loan for you. 

Long-Term Financing Options

When your business is need of funds that will be used for equipment, inventory, refinancing debt or other large purchases, a long-term loan is one of the best options out there for obtaining the funding you need. Long-term loans can be paid off over a longer period of time and often have lower interest rates than other funding options. Here are some common long-term loans for business owners: 

SBA Loans

The Small Business Administration (SBA) offers loans through a number of different banks. SBA 7(a) and SBA CDC/504 Loans are two of the most popular loans available through the SBA. Both of these loans require credit scores of 620+. The typical application process can take between three and four months.

Term Loans

A term loan involves a bank providing you with your money up front. You then repay that money, along with interest and fees, over a predetermined amount of time. These loans have a faster turnaround time than SBA loans. Term loans typically require you to have a good credit score. Your business also has to have been open for at least a year and have a minimum of $90,000 in revenue on an annual basis. 

Financing Options for Those That Need Cash Quickly

If you need money right away, a traditional loan isn’t going to be processed in time for you to have the money you need. Luckily for you, there are a number of financing options available for small businesses that need cash in emergency or other time sensitive situations.

Business Line of Credit

Much like using a cash advance from a credit card, a business line of credit provides your business with a specified set of funds that you can draw from whenever you need to. Interest is paid only on the amount you withdraw. A business line of credit is an excellent option for you to establish or repair your credit history. It’s also a good option for those who don’t have great credit. 

Short-Term Loans

A short-term loan has a shorter repayment schedule than a traditional loan. Depending on your lender, you may have to make weekly or daily payments over the course of 3 to 18 months. Short-term loans are another option for business owners with poor credit. 

Merchant Cash Advances

A merchant cash advance (MCA) is an excellent way to receive money in a timely fashion. If your business brings in a lot of revenue through credit card sales, a MCA allows a financing company to lend you money while using a percentage of your credit card sales to repay the loan. While it is easy to qualify for a MCA, interest rates and fees on these advances are usually high.

Financing Options for Those With Poor Credit

A low personal credit score can negatively impact your business, making it more difficult for you to receive necessary funding from traditional lenders. If you have a poor credit score, there are options out there for your small business. Many of these options don’t require you to put up additional collateral for your loan. 

Equipment Financing

This kind of financing is an excellent option when you need new equipment for your business. Since the equipment you purchase with the loan is the collateral, these loans are relatively easy to receive. 

Invoice Financing

Businesses that rely on invoicing to receive payments from their customers often experience delays in getting paid. If this is your business, invoice financing may be a good fit for you. Invoice financing involves a financing company giving you a percentage of the money owed to you via invoices and allows you to repay the loan as your customers repay their invoices. 

 

Financing Options for New Businesses

Since many lenders require that businesses be established for at least a year, it can be difficult for new businesses to receive small business funding. Here are two popular options for funding a new business.

Small Business Startup Loans

Small business startup loans usually combine business credit cards, business lines of credit and equipment financing. They typically require a great credit score and take a while to apply for. 

Personal Loans

Many new business owners utilize personal loans for business purposes. These loans usually have low interest rates and fees. You will need a good credit score to qualify for a personal loan.

Find the Right Financing Option for You

Once you know what you need your money for, what your credit score is, what your credit history is and whether or not you have collateral for your loan, you’ll be able to narrow down your financing options to what will work for your small business.