A solid understanding of the importance of a small business loan is vitally important before you take the necessary steps towards acquiring one. Simply walking into a bank and demanding more money in a time of need is unrealistic. It’s important to accurately assess your businesses’ financial situation so you can develop a solid reason as to why you should qualify for a loan. Banks offering traditional loans are hesitant to throw money at a business that is constantly losing it, so qualifying for a loan with traditional lenders is not always a seamless process.
But you don’t have to get stuck in the rut of traditional lending; there are many great loan options for business owners who are in need of some quick cash.
If you’re looking to buy business equipment or real estate up front, then a term loan is a great fit. You need a term loan. A term loan is set to a specific standard of terms, which means there is a set interest rate.
Businesses in the startup phase may have to provide a lot of documentation and business analytics to qualify for a large sum of money with this type of loan, as some institutions will want proof that their advance is going towards a lucrative machine. But you don’t have to run a million dollar startup to qualify for consideration for a term loan. Businesses that have a bit of history behind them with proof of consistent profit qualify well for this loan.
Accounts receivable factoring is a unique type of lending where the factoring company buys your accounts receivable with the expectation of receiving payment on them under normal terms in the future. Accounts receivable can be sold at 97% of their value, and the factory company makes their money back as they collect the 3% from the customers as they pay the remaining percent that would normally go to the business.
While factory lending is a unique way yo go about gaining capital, it can be quite expensive with your AR being worth anywhere from 95% to 98% of its value in a month. And when you add up the discount the factory company gets over the course of a year, the amount you end up paying is quite high.
Lines of Credit
A different and helpful type of lending is done through a line of credit. Lines of credit are typically offered through alternative lenders, and they can prove quite helpful to small business owners. Just as you can tap the equity in your home to help with financing, you can put something in your business up as collateral to receive the needed funds to help get your business off the ground. These types of loans are quite helpful for business owners who have bad or low business credit, too. Another benefit of a hard money loan is its fluidity, as you may not have to take out the maximum amount of money in conjunction with the possession you are putting up as collateral.