When you need to grow your company, extra capital may be the key to expansion. While most small businesses look into financing or small business loans, you have to weigh out the cost and benefits. If you’re new to small business financing, then it’s likely that there is a lot left to learn. SBA loans, in some cases, may be the key to a business surviving. After all, loans help with immediate costs that might make or break a business.
Traditional bank loans tend to have the lowest rates. Unfortunately, they also have some of the highest qualifications. Small businesses are considered high risk and hence it might be difficult for most small businesses to receive funding that they need. You have to have strong revenue, good credit and years in business.
Lines of Credit
A line of credit is a little different from a business loan. It comes with similar interest rates and the same benefits and disadvantages as a loan. The difference is that you can draw from your balance, as you need to. Likewise, you can spend the money on anything in your business.
SBA loans, or loans that are offered through the Small Business Administration are usually the best option possible. The SBA rate is lower than most bank loans and is accessible to most small businesses. In a Small Business Administration loan, the SBA works with a bank or intermediary lender. They guarantee part of the loan. What this means is that if your business fails or you default on the loan, then the SBA will pay a percentage of the loan to cover the lender’s costs. If the SBA manages the risk, then banks are more likely to offer loans to small businesses.
If you have a problem with slow paying clients, then invoice factoring is the best option. In this type of financing, you use your invoices as collateral. You can get an advance of about 85 percent of your invoices. What makes this type of funding even more advantageous is that you can receive it in the same day. Unfortunately, compared to most business loans, this one is more expensive.
When it comes to growing your company, you need funding to make it happen. Most small businesses are able to do this by applying for SBA loans. These are the most accessible option for smaller companies to receive the funding that they need.