Business Loans: What are Your Options?

At one point or another, businesses would need SME funding to invest in infrastructure, increase inventory, or just keep the daily operations running, among other things.

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When it comes to SME funding, businesses often have two primary options—apply for a loan or bring in investors.

While both options have their strengths, the former tends to be more favored as it often entails less outside input when it comes to running the business.

If you are a business owner looking to secure additional funding for your venture, you’d be glad to know you have plenty of options available at your disposal.

Lines of Credit

Instead of receiving a lump sum, a line of credit gives you access to funds incrementally (or as needs arise) akin to using a credit card.

While the fees and compounded interest for this option can be high compared to the others, this option is still considered by many to be significantly advantageous.

Lines of credit are ideal for use when income shortfall occurs (and not for expansion or improvements).

Long-Term Loans

This is one of the most common types of loan provided by many lenders.

The money from long-term loan is often used to fund business expansions, refinancing, and acquisitions. It is also used as working capital.

This type of loan is typically repaid on a monthly basis.

While long-term loans often involve large amounts, it often comes with a lower interest rate as opposed to short-term loans.

If you are running a well-established business, getting the nod is easier.

For new businesses with a strong growth plans, the possibility of being granted a long-term loan is a lot higher.

Alternative Financing

For those who are looking for non-bank lending products, it is reassuring to know plenty of options are available.

These options can take the form of asset-based loans, peer-to-peer loans, cash advances, leasebacks, etc.

The money from alternative financing can be utilized for purposes like meeting cash shortages, funding small-scale expansions, and getting the business off the ground.

While typically involves a smaller amount as opposed to bank loans, these type of loans often come with higher interest rates.

Short-Term Loans

Unlike other options that entail payments on a monthly basis, short-term loans are due and payable in full at the end of the term agreed upon.

As the name implies, short-term loans are used for short term needs: purchase of additional inventory, completion of small projects, raising cash for payables, etc.

Short-term loans are especially ideal for seasonal businesses and retailers.

These loans are often provided by banks and credit unions.

Once you have decided on the type of loan that will best suit your needs, it is imperative that you find ways to help maximize your chances of getting approval.

The following tips should help get you off to a good start:

  • Know and understand the consequences of your credit score. If there are issues, come up with ways on how you can effectively address them.
  • Identify sources of current income and make sure you are able to clearly outline how the amount you want to borrow will be used.
  • Provide creditors with interim financial statements that showcase positive cash flow. A positive cash flow will help exhibit your ability to repay your obligations promptly and fully.
  • Know the value of your business. In essence, the value will refer to the amount a buyer would be willing to pay for your business at a specific time. In most cases, the valuation will help gauge how much a lender would be willing to part with at a given interest rate. Understandably, it is essential for lenders to know how much the business is worth in case of a loan default.

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