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Many years ago, there were only conventional loans that could be obtained through banks, but today small business have many options from different types of lenders. To help you through your options, here are some great financing alternatives for your business with pros and cons of each.
SBA Loans
Small Business Administration loans are a great way for small businesses to compete with large organizations, however it can take several months to qualify. The SBA acts more like a guarantor than a lender, but it does have an express loan program that will reduce the time it takes but it is hard to qualify for one. You need a high credit score, at least over 700, and collateral and a profitable business. However, overall, the SBA loan program is one of the best financing options for small businesses when you have time to go that direction.
There are several types of loans under the SBA including the SBA 7, SBA microloan, SBA 504 and SBA Fastrak Loan.
Business Credit Cards or Lines of Credit
For quick cash, business credit cards or lines of credit can be a good option. You can earn lots of rewards and get good interest rate promotions at the start of the card, but you can get in trouble when you carry a balance. Interest adds up fast. Business credit cards do not fall under the “Credit Card Responsibility and Disclosure Act”, and you can have your limit reduced without any notice from the issuer if you fall behind.
Invoice or Purchase Order Factoring
If your business deals with invoices or purchase orders, factoring is a popular way to get working capital. Lenders are finding solutions in order to update factoring to make it even easier and quicker for businesses. You can apply and get approved in under a week. These types of financing can be beneficial if you are trying to close a cash flow gap but can be more expensive over time. If the lender works on a recourse basis you might be liable if your customer does not pay.
Equipment Leasing and Financing
Leasing equipment is another way to stay up to date with technology in your industry without having a huge outlay of working capital to get the equipment you need. You do not need the same financial documents for an equipment lease as you would for a conventional loan, but your business will probably need to show that you have been in business for a while and have the minimum credit score required.
Questions to Ask When Making a Decision
Before you decide which route to take, you might need to think about the answers to the following questions:
- What are your personal and business credit scores?
- How fast do you need the money for your business?
- How long as your business been operating?
You should balance your own financing needs against your objectives and the lender’s qualification process. Before you sign any applications and contracts get as much information as you can. When you make good decisions, your business can thrive.
