For many growing small businesses, access to extra capital could change everything. Whether you need money for expansion, increasing inventory, or less savory things like covering unexpected expenses or simply keeping your business afloat.
There are two options that will enable a business to receive funding. The first would be taking out loans. Second would be bringing investors. I order them that way because you always want to minimalize outside input on how to run your business. Inviting a group of investors into the mix would be counter-productive to that notion. With these varieties of loans, you can receive tax deductible interest payments with lower rates and terms set based on your businesses activity.
The rate at which small business funding has been being utilized has increased dramatically since 2013, and is only growing stronger. However, the amount of small businesses that were able to satisfy their need for borrowed capital has remained below 50%. This means that business owners really can benefit from knowing more about alternative funding options and how to maximize their chances of getting approved for a loan.
We’ll show you about your different options below:
- Short-Term Loans
These loans require no monthly payment. Rather, they are due in full at the end of the agreed-upon term. These loans are typically utilized for the short term. To cash in on a great deal on inventory, raise cash for accounts payable, or to complete a project that’s going to yield a fast return. These loans are typically under $100,000.
- Long-Term Loans
These are one of the most common types of loans that commercial lenders distribute. Typically used to expand your business, acquire new property or absorb another business, refinancing, or working capital. These loans tend to be on a monthly repayment schedule. Coming in larger amounts with lower interest rates than the short-term loan option discussed above.
- Lines of Credit
Instead of receiving a lump sum, when you open a line of credit allows for small businesses to access funds when they need it. You could use it much like using a normal credit card. With potentially high compounded interest and fees, credit lines are best used temporarily. That is why these loans are typically used for shortfalls in income, rather than actual business improvements.
- Alternative Financing
There are multiple non-bank funding products available, such as cash advances, peer-to-peer loans, leasebacks, asset-based loans and crowdfunding resources. These can be used for a much wider array of things ranging from starting a business to meeting income shortfalls. These loans are typically much smaller than bank loans and often have higher interest rates.
So, overall, qualifying for a small business loan is a serious undertaking and there are many factors that need to be taken into consideration when seeking funding for your business. Be sure to maintain good communication with your potential funders and funding managers, because when your business is being evaluated for a potential loan, it’s important that you have a team effort. In turn, this enables your funder to offer the best advice for you to help your grow your business.