There are various sources of funding for your business. Options range from loans, lines of credit, invoice factoring and merchant cash advances – just to name a few – but many common forms include business loans, lines of credit and invoice factoring as well as merchant cash advances.
Business loans provide financing that allows your company to pay its expenses without selling equity in return. They allow you to retain ownership and stay in control.
Types
When searching for business financing options, it’s essential to understand all of your available choices. From traditional banks and online lenders to private companies and even financing from the Small Business Administration (SBA), there is something suitable available.
When applying for a business loan, you may need to submit a detailed business plan that details how the funds will be spent. In addition, collateral such as company assets or accounts receivable may need to be pledged as security – in certain instances you may even need to provide personal guarantees as part of the application process.
Some forms of financing offer flexible terms and can be used for an array of purposes, from inventory purchases and equipment leases to short-term working capital needs like CAPlines. Industry conditions also play a part in the type of funding available – if it’s experiencing economic decline, for instance, you are more likely to receive shorter repayment terms funding options.
Purpose
Business loans can help fund expansions, boost working capital levels, or purchase equipment – however business owners might be uncertain of which loan best meets their needs. A term loan offers fixed payments over an agreed upon term period – making this an excellent solution for financing an expansion while helping avoid high interest rates associated with credit cards.
Consumer loans tend to be approved on the basis of borrower financial information, while small business loan applications require extensive documentation, including audit balance sheets, income statements and tax returns. Lenders also consider the creditworthiness of both promoters and the company itself when underwriting these loans, in addition to past payment history as they evaluate each business loan application – sometimes offering incentives such as tax breaks for new and emerging businesses that could help facilitate their funding needs.
Uses
Business loans can be an invaluable source of funding when expanding a business, including hiring additional staff members or opening new locations or product lines. Lenders tend to view loans favorably when the borrower provides a strong business plan and projections showing when cash comes in and expenses occur.
Other uses for business loans may include increasing working capital or purchasing equipment. A business line of credit offers flexible financing that lets you borrow up to your credit limit without incurring interest charges until funds are used – perfect for covering regular expenses like rent payments and inventory purchases.
Another use for a business loan is paying off existing debt. Doing this can save on interest payments while freeing up more funds in your budget for expanding the business.
Interest rates
Interest rates can have a tremendous impact on business financing loans, and consulting a financial adviser is key in understanding all your options and finding one that best meets your business’ goals. They’ll also assist in devising plans to repay any outstanding debt and remain profitable long term.
Lenders take many factors into consideration when setting loan and line of credit rates, including factors like your personal and business credit histories, industry, economy and economic outlook. Some lenders even set rates based on benchmarks like prime rate.
Working capital loans provide low-interest solutions to businesses that need to cover day-to-day expenses with minimum interest, but often come with stringent requirements compared to other forms of funding. Lenders usually mandate that businesses have been operating for at least a year with consistent sales or profitability before being approved; furthermore, some may impose minimum credit scores or personal guarantees as conditions for approval.
