This federal survey shows that about 44% of small business owners have borrowed funds to meet their business expenses. Most of these owners choose to borrow funds to purchase equipment, finance projects, and other activities for business growth. So there’s no shame in getting a loan or other financing options for your business.
Funding Options You Can Consider
When it comes to small business funding, there are several you can choose from. You can get funding from brick and mortar banks or online lenders, such as Creditninja.com. Below are some of these options:
Traditional Bank Loans
A traditional bank loan is a term loan that gives you a lump sum of money. This type of loan usually doesn’t need any collateral and the repayment term is fixed.
The interest on a traditional bank loan is fixed at the point of agreement. The monthly payment amount of traditional bank loans isn’t subject to any change. This means you don’t have to worry about any increase in repayment amount in the long run.
Short-term loans are similar to traditional bank loans. However, they tend to provide you with smaller amounts. Most of the time, the repayment term is 12 to 84 months. Short-term loans can either be fixed or variable when it comes to interest rates.
When we say fixed, this means the interest rates aren’t subject to change until you pay back the loan in full. On the other hand, variable interest rates mean that your loan’s interest might change in the long run, subject to some financial index determined by the lender.
Line of Credit
This type of funding can provide you with the best variety of financing options. Lenders often require you to pledge your assets as collateral. Also, the interest rates are usually variable.
Line of credit lenders typically offer higher interest rates for borrowers that don’t pledge any collateral. Most of the time, the lower your borrowing amount, the higher your interest rate will be. Line of credit is great for small business owners who are in immediate need of funds to cover short-term expenses like payroll or inventory.
Business Credit Cards
Having a business card is a must. In fact, most small business owners have multiple credit cards. This is because business credit cards are easier to qualify for than loans.
Business credit card reports offer you easy tracking of your expenses. It can also help you to compile and manage all the information you might need in your tax filing. Business credit cards are best for those that need to manage their business cash flow.
Small Business Administration (SBA) Loans
SBA loans are provided for by the Small Business Administration. The government backs up a substantial part of any SBA loan you take. Although this program has so many options, you first need to apply to see if you qualify.
Application Tips For Any Small Business Funding Options
The following are some tips you can consider before applying for any funding option:
Solidify Your Business Plan
Ensure you really need the funds you want to borrow. Writing a solid business plan is a great start. Doing so can help you see the bigger picture of where your business is heading with the money you’re trying to borrow.
Evaluate The Financial Status of Your Business
Lenders have their ways of making sure you can afford the loan. They might look at the following:
- Credit History
There is a huge chance that lenders will look at your business credit history and personal credit history. It will help if you request both your business and personal credit reports before applying for any loan. That way, you have enough time to fix any error and boost your credit standing.
- Cash Flow
Lenders may want to evaluate if you have sufficient cash flow to repay the loan. However, if your small business is new, they usually look at your experience instead.
Some lenders may require you to pledge collateral. This will serve as the lender’s security if you fail to pay back the loan. However, if you don’t have enough assets that will serve as collateral, you may want to ask a co-signer to do it for you.
- Job History
If you’re yet to have enough history in the small business world, lenders might consider your job history and experience. This is to help them evaluate whether you can truly manage your small business and pay back the loan amount in full.
To Wrap It All Up
When it comes to funding your small business, there’s no need to worry. There are many options to choose from. However, keep in mind the importance of taking control when you borrow money, regardless of the amount. Also remember to make payments on time and in full. That way, you won’t have any business financial problems to deal with.