Statistics have shown time and time again that one of the biggest problems small business owners have is cash flow. Having the necessary capital to start or run a business is not always as easy as withdrawing funds from a checking or savings account. However, some find that money doesn’t always come in as quickly as it goes out. From startup costs to operating costs, many business owners find themselves in need of financial assistance and look to lending options to tide them over.
Startups Have an Uphill Battle
Although there are funding options available for startups, there is a bit of an uphill battle that business owner hopefuls should be prepared for. Since you don’t have an established business for lenders to assess for creditworthiness, your approval will solely depend on your personal finances. Unless you have an outstanding credit history or a valuable asset to use as collateral, obtaining large lump sums of cash may prove difficult. If you are approved with less than good credit, you should be prepared to be hit with high interest rates, shorter loan terms, and lower loan amounts.
- Short-term loans
- Medium or long-term loans
- Small business loans (Small Business Association)
- Crowdfunding
- Fundraising
Those trying to obtain financing for their startup should consider options with the fewest formalities. This might include fundraising or crowdfunding.
Funding Established Businesses
For those who have been in business for a few years, the options for funding, chances of approval, and financial savings increase. Revenue-generating businesses have verifiable income, assets, and their own credit history which can be reviewed to determine creditworthiness. Lenders are therefore more likely to provide funds as you are less of a risk than someone who’s just starting out.
Whether you’re in need of a loan because of a slow period, expansion, a new product launch, to hire new staff, to purchase equipment, or to pay down some debt, there are several funding options available:
- Equipment loans – Whether you need technology and software, healthcare and medical equipment, or office furniture for your commercial property, equipment loans can provide the money you need. With service providers like Tetra Financial, established businesses have been able to allocate deals to get everything from new coach busses for an amusement park to financing for portable schools.
- Line of Credit – Like credit cards, a business line of credit is a lump sum of cash placed in an account for your use. Banks like Wells Fargo provides established businesses with a line of credit that can be used as often as you’d like. Businesses can withdraw the entire amount or use small amounts over time.
- Invoice Financing – Established businesses often need money as a direct result of unpaid invoices from customers. Invoice factoring or financing is an option available for financial relief. There are several options here. Businesses can sell their invoices to a company and the new company will collect to get back their investment or businesses can use their invoices as collateral and receive as much as 85% of their invoice total upfront and the remaining amount once the customer has paid the invoice.
- Business Credit Cards – Another funding option that is easier for established businesses to acquire than a startup is a business credit card. Rather than using your personal finances, credit card companies can use your company finances to determine creditworthiness, interest rates, and credit limit.
Though established businesses have more funding options than startup businesses, thought should still be given to which option you use. Remember, whichever funding avenue you take, you will be responsible for repaying those funds with interest. If there are options for generating cash for your business, it is best to explore those options prior to borrowing.
In running a business, the need to borrow funds from time to time is highly likely. If you do need to get funding for your startup or established business, be sure to review all your options carefully. Make an informed decision that will provide you with upfront cash to cover costs without causing too much financial strain later.
