Loan Options for Small Business Needs

2015-08-01

Jeffrey Bumbales

Running a small business can be extremely profitable if you’ve got a solid business plan in place, and the work ethic to make it a success. But it can also be downright expensive, especially when you’re just starting out.

You’ve heard the saying, “it takes money to make money”. And when it comes to running a small business, there are a host of expenses that will need to be covered, including:

  • Marketing
  • Equipment purchases
  • Stocking inventory
  • Paying employees
  • Legal and license fees
  • Accounting fees
  • Telephone and computer expenses
  • Covering for seasonal lows
  • Covering for unpaid invoices

The list goes on and on. And if you don’t have the available capital to cover these expenses, you’ll most likely have to look to a lender to loan you the money needed.

Are Bank Loans a Good Option For Your Small Business?

Conventional banks have traditionally been the go-to source for small business loans. But ever since the economic crisis hit the country in 2008, lending criteria has become more stringent than ever.

Banks want to protect themselves from engaging in loans that will tie them to borrowers that will default in their payments. As such, they’ve boosted their lending requirements, which many small businesses cannot meet.

Rather than waiting months just to be turned down by big banks and other big financial institutions, there are other available loan options you should consider.

In an effort to help small business owners get their businesses up and running without a hitch, alternative lenders don’t place such strict requirements for borrowers to get approved for a loan. Instead, they look for other ways to see how serious you are about your business, and how likely you are to be able to make your payments.

Alternative Lenders Can Better Meet Small Business Requirements

Traditional small business loans require you to have good credit, plenty of collateral, and a lengthy business history, but there are other financing options. Below, we’ll cover some options with easier requirements and immediate access to the money you need.

Invoice Financing

Many small businesses experience the frustration of waiting for customers to pay off their invoices. While many times businesses can afford to wait for this money to come in, other times that money is needed to cover expenses, like paying employees or covering their lease.

Rather than drown in debt as a result of invoice payments lingering in limbo, invoice financing can help. With this funding program, a lender will buy your outstanding invoices until your customers pay them.

About 85 percent of the loan amount is given to you, with the remainder withheld from which the lender takes the associated fees for the funding. Once your customers finally pay off their invoices, you are given whatever is left over from the reserve fund.

You don’t need to collateralize the financing with any of your business or personal assets – the invoices serve as your collateral.

Equipment Financing

Every business needs a certain amount of equipment. But equipment typically requires a lot of money to buy. If this money isn’t readily available, you could be stuck with a shortage of the equipment you need (or necessary working capital).

With equipment financing, a lender will give you the amount of cash you need to buy your equipment, after which you pay the lender back the money borrowed – along with the associated fees. Once the loan is paid in full, you are the rightful owner of the equipment (unlike equipment leasing).

The equipment itself acts as the collateral for the loan and the application and approval processes are quick. (the funds are deposited into your account within 48 hours.)

Business Lines of Credit

Much like a credit card, a business line of credit allows you access to a certain amount of credit that you can access as needed. Whenever you need cash, you can withdraw whatever amount you choose from your account (as long as it’s under the limit).

After you deposit it back into your account, you’re free to tap into the funds again. The great thing about this program is that you only pay interest on the amount of money you withdraw, rather than the entire amount.

The money is always there when you need it without having to reapply when the need for extra capital arises.

SBA Loans

The Small Business Administration works with various lenders to give small business owners the cash they need to start their companies and grow them. While the SBA itself doesn’t loan out any money, it backs up lenders that do, thus giving such lenders more incentive to loan out to borrowers.

These loans most often require the lowest down payments and longest payment terms at reasonable interest rates compared to other loan options. However, the application process and time to funding will take several months.

Wondering Which Financing Option is Right For Your Small Business?

At Credibly, we strongly believe that every small business should have every opportunity to succeed. Oftentimes this means getting access to funds as necessary to cover various expenses.

Contact us to find out how we can assist you, or submit our online pre-qualification request to get started. It’s free and easy and will not hurt your credit.