Modern Business Funding Options You Should Consider


Minyang Jiang

Every small business owner knows that you can’t make money in business without having some money already in your back pocket. Working capital is a critical component to starting and running a business.

Stabilize Your Working Capital With Business Financing

Many entrepreneurs come up short on cash making it nearly impossible to sustain a successful business. Thankfully, there are a number of business funding options available for small business owners who need a little extra working capital from time to time.

If that sounds like you, perhaps one of the following financing options can fit the bill.

Merchant Cash Advances

With this type of business funding option, you’re given funding in a certain amount, which is typically approved and funded within 48 hours. There’s minimal paperwork involved in order to apply.

Once you’re given the money, you pay it back by allowing the lender to take a certain percentage of your daily credit card sales until the entire amount has been paid back in full.

Merchant cash advances are not like a traditional loan – instead, the lender is actually ‘buying’ a portion of your credit card sales.

Are Cash Advances Right For You?

A merchant cash advance could be the perfect option for you if you don’t qualify for traditional financing at financial institutions. They’re also a great option if you have little collateral, a short business history, or a poor credit rating.

If you receive a large portion of your revenues through credit card payments (for example, restaurants and retail stores), you can use a merchant cash advance as a short-term solution to help with inventory purchasing, paying off debts, covering unexpected expenses, and more.

  • Pros – Since you pay back the advance by paying a fixed percentage of your daily credit card revenues, you actually repay a smaller amount of money during slower months. This means your working capital won’t be drained when sales dip on a particular month. You don’t need good credit, and you can use the money as you wish.
  • Cons – A merchant cash advance can be a fast way to access the cash you need, but it can also be pricey. Fees can range anywhere from 15 to 80 percent of the amount borrowed.

Business Lines of Credit

Imagine having a certain amount of money on the back burner that you can access whenever the need arises? That’s what a business line of credit can offer.

Similar to a credit card, you are given access to a certain amount of money whenever your working capital falls a little short. You are only charged interest on the money that you withdraw, rather than the entire amount.

Once you deposit that amount back into the line of credit account, you are free to borrow from it again, paying interest only on the portion used.

The main purpose of a line of credit is to provide a cash cushion when it’s required. That’s why the ideal time to apply for a business line of credit is before you need it.

Is a Line of Credit Right For You?

A business line of credit is best for short-term financing needs, including covering payroll, temporary shortages in cash flow, or seasonal expenses.

  • Pros – One of the biggest advantages to a line of credit is the fact that interest is only charged on the funds withdrawn. Capital is always available when you need it, and you can use the money for all sorts of business purposes. Bad credit is acceptable for shorter lines of credit, and you can actually use this program to help build back your credit score.
  • Cons – If you’ve got a low credit score, the interest rate charged could be quite high. In addition, you may require some collateral, as well as updated documents on every withdrawal.

Short-Term Business Loans

Short term loans work like typical term loans. You’re given a certain amount of money upfront and pay it back along with the lender’s fees and interest rate over a set period of time.

Loan amounts are usually smaller than traditional loans, and the repayment period is much shorter. Instead of paying a certain amount every month, you’ll most likely be paying more frequently (daily).

Is a Short-Term Loan Right For Your Business?

A short-term loan can give you the cash you need to cover all sorts of business expenses, including promotional expenses, building inventory, expanding the business, refinancing other short-term debts at better terms, and so forth.

  • Pros – With a short-term loan, you generally get access to the money almost immediately without having to fill out lengthy paperwork. The debt is only on your record for a short time period, and you can use the money for just about any business purpose.
  • Cons – You might need collateral to be approved for a short-term loan, and the interest rate could be higher compared to a longer-term loan. In addition, this loan could tie up your credit, which could prevent you from applying for other loans.

SBA Loans

The US Small Business Administration (SBA) is a federal agency that offers a variety of loan programs. This includes programs dedicated to small business owners who are looking to get their business off and running, adding to working capital, buying inventory or equipment, or simply to expand.

It should be noted that the SBA itself doesn’t actually loan out the money directly to businesses. Instead, small business owners would have to apply for an SBA loan through a lender that participates in SBA financing. Lending institutions have a bigger incentive to loan money considering the fact that the SBA guarantees a certain percentage of these loans.

That’s why lenders are more willing to loan out money to small business owners without expecting stringent requirements to be met. However, a lengthy loan application will most likely have to be filled out.

In addition, documents such as financial statements and a description of your business will have to be provided. You’ll need to show that you’ve got a solid business plan, some collateral, and a proven ability to pay back a loan.

The Most Popular SBA Loan Programs

SBA 7(a) loan – This may be used for a variety of general business purposes. The fees associated with this type of loan include a guaranty fee that’s typically included in the total cost of the loan. This fee is based on the maturity of the loan and the amount of money guaranteed.

The interest rate paid on the loan can be either fixed or variable. The maximum rate is comprised of two components: a base rate and a spread. Lenders can add an additional spread to the base rate if they so choose. The maximum spread is 2.2 percent for loans with maturities less than 7 years, and 2.75 percent for greater maturities.

CDC/504 loan – This is most often used to buy equipment, commercial real estate, or other fixed assets. The fees associated with the loan option total about 3% of the certificate of debt and can be financed with the loan. The interest rates charged for a 504 loan are calculated by an increment over the current market rate for 5 and 10-year US Treasury issues.

Benefits of SBA Loans

Many newer businesses can qualify for an SBA loan, as long as certain criteria are met. Here are some of the benefits of SBA loans:

  • No large down payments required
  • Affordable interest rates
  • Long repayment periods
  • Many programs available

Drawbacks of SBA Loans

Along with the benefits come a few downsides of SBA loans, including:

  • In-depth paperwork
  • Lengthy approval times
  • Collateral and good credit may be required
  • Stringent approval requirements

If you’re still unsure about which loan program is right for you, Credibly can take you step by step through all the options available, and help you identify if you qualify for such loans.

For all of the small business funding solutions available to you, contact Credibly To get started now, fill out our online pre-qualification request form. It’s free and easy and won’t hurt your credit.