Lending Options for Small Businesses

Starting your own business can be very exciting. The notion of starting a new business is a very popular one, which is proven by the fact that there are currently an estimated 30.2 million small businesses in the United States. But getting a new business up and running, and turning a profit, can be quite a challenge.

Though it is impossible to indicate precisely how long it will take to turn a profit for your small business, on average, it can take one if not two or three years. To become profitable, small business owners need to first and foremost ensure that they have a product that will resonate with their target market, and the owners need to be organized with the appropriate business and financial savvy to stay successful long term.

In many cases, small business owners need to take advantage of incremental funding to expand operations, purchase equipment or inventory, or to increase working capital. This said it could be highly difficult to obtain incremental funding if you haven’t been in business for at least one year and if you cannot provide adequate business plan documentation and proof of revenue growth and historical financial information.

Methods to get cash for your small businesses 

There are a variety of methods that you can utilize to garner financing for your small business. Many business owners decide to take our business loans or to use their credit cards. In other instances, business owners get funding from family members or friends, or from investors who hope to see the business grow. 

Here is a quick list of funding options available for today’s small businesses.

Traditional term loans – These loans are excellent options for small business owners that have excellent credit. Those with a credit score of 700 or above will have more of a chance of loan approval than those with a score below 700. And the closer the score gets to 800, the chances are even better.

Small Business Administration (SBA) loans – These loans are not funded by the SBA but are partially guaranteed by the SBA. For these funding options, the SBA partners with a network of approved banks and other financial institutions as a way to help small business owners turn their businesses into profitable and long-term programs.

Business lines of credit – This financing option provides a credit limit that allows business owners to use up to that credit limit as long as they continue to pay their monthly commitment. And, as the balance goes down, the business owner can reuse the open balance over and over as needed for the life of the credit line. Though the amount that can be borrowed with a business line of credit is generally less than that of a term loan, it is a great option for many owners as they do not need to put up any collateral.

Business credit cards – If you don’t have at least twelve months of business history and your company doesn’t show past profits, it can be very difficult to get approved for a business loan. Therefore, many business owners leverage their business credit cards in the early stages of their business. It’s a quick way to get access to the necessary funds.

Equipment financing – This type of loan is used to purchase or lease hard assets that are needed for the business. If you default on this loan, then the lender can repossess the equipment. Though this seems like a risk, it is a much lower-risk way to acquire equipment than with other forms of small business financing.

Invoice financing – This type of financing allows small businesses to borrow against the amount due from their customers for products received or services rendered. This can help to improve cash flow and pay suppliers in advance of receiving actual payment from the end-consumer. Business owners pay a percentage of the invoice amount to their lender as the fee to borrow the money. This lending option is especially helpful for business owners that have payment terms of 30 – 45 days (or more) from their customers.

Short-term loans – These loans can offer working capital to overcome short term financial challenges, pay off higher-interest debts on other sources of financing, or to take advantage of a compelling opportunity to improve the business. In most cases, these instant cash same day loans need to be repaid within two years.

Grants – These funding options consist of seed money that can help further the goal of an organization. In most cases, these funds do not need to be repaid as long as you can indicate that you have achieved the goal that the funds were set aside to assist with.

Crowdfunding – One of the newer and more modern ways to fund your business, crowdfunding involves raising capital online through the collective efforts of your social followers, family, friends, existing customers, or loyal investors. In this approach, a fund is set-up online, a value proposition and goal is communicated, and people are allowed to contribute either publicly or anonymously to the fund.

With any lending opportunity, small business owners should do their homework. It is suggested that a thorough amount of research is conducted before taking on any small business financing, as you must be able to pay back the amount that was borrowed within the allotted time. That said, when small business lending is used appropriately and maximized for the right business needs, it can be a game-changer in helping a company to achieve its goal and increase profitability.

Ravi Bhatt

Ravi Bhatt is a crazy freelance writer – founder of MeetRV where he publish news and information about various concepts. He aims to help bloggers and readers with his latest tips.

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