Business owners tend to feel that if they are not able to get a loan from a bank, then they are out of luck. However, that is not the case. Those needing funding have several alternatives to bank loans.
Many different kinds of business loans are available, with different qualification requirements, terms and rates. Each one is meant for a different business requirement, which leaves the majority of business owners thinking about how small business financing works.
Lines of Credit
A line of credit is good for a business owner with good credit wanting a cash cushion. However, it is not a suitable option if you are launching a new business or have bad credit.
In a line of credit, a bank gives you access to a set amount of money, and you can draw from the line whenever you want to. Credit lines can be revolving or fixed. With the former, the line of credit resets once the balance is paid in full.
A line of credit creates a cushion to cover unforeseen expenses, and it comes in handy especially when you require funds fast. Banks often offer unsecured and secured lines of credit. For a secured credit line, you need to offer up something as collateral.
However, it is not easy to qualify for a line of credit. It takes as long a time to process as a term loan. However, if you can wait for that bank’s call, and feel that there is a good chance to secure a bank product, then this is a good kind of loan to have.
It is good for fixing cash flow issues, which stem from unpaid invoices. However, it is not worth considering if you do not invoice customers or yours is a B2C business.
With invoice financing, you use your accounts receivable to obtain an advance from a lending company. The invoice due from your client essentially secures this form of loan.
With this business loan type, a lending institution advances you a portion of your overall invoice amount, while holding onto the remaining portion. You can use this cash advance to cover your business costs when you wait for your client to pay. Meanwhile, your cash advance provider will charge a small weekly fee. Once your client pays you, it will give back the remaining portion, minus fees.