Options For Small Business Financing
Small business financing options come in all shapes and sizes. And just as there are too many options available, there is also confusion about what some of them mean. Small business finance (also known as start-up funding – when referring to a loan for an initial investment in a start-up business – or franchise funding – when discussing financing for a franchise business) can mean two different things. It can be commercial real estate loans; it can be merchant financing or specialized business credit cards. The last type is commercial lines of credit.
Commercial real estate financing is for businesses that have already been built. It is used primarily for properties that cannot easily be sold, such as warehouses, office buildings, and apartment buildings. The business plan should explain why these properties are good to invest in, how much they will be worth after the startup period, and what kind of financing options are available to the lender. Most banks will require personal guarantees from the new business owners in the startup phase, so a good credit score and a sound business plan are essential to get a loan even with poor credit.
Commercial merchant credit cards are one of the business financing options that most investors overlook. These innovative financing tools allow business owners to accept credit cards from customers even before the business is open. These cards then earn interest while the business is not open, which can be a huge bonus for investors. This makes these credit cards very attractive for small entrepreneurs who want to have a ready market for their products right from the start.
Another small business financing option is to seek a loan from government programs and other organizations. Most state and local governments offer low-interest financing programs for community development finance institutions or CDFs. These programs can provide small business owners with enough money to purchase land, develop the land, and find a piece of property with a reasonable amount of collateral. The collateral, in most cases, should be a piece of real estate owned by the financing institution, but this is not always the case.
Private individual loans can also be sought after as another form of financing. These are generally much larger than most private individual loans, and the repayment terms are not as flexible. It is generally advised that these types of loans are used by established business owners who have collateral that can be sold to pay back the loans. While the repayment terms may be more restrictive on these loans, they can be a good choice if you have collateral that will not be damaged by not paying your loans.
In addition to the options already listed, third-party financing sources you can consider for your SME. Your accountant or bank may be able to provide you with a merchant cash advance or merchant cash advance financing. Your banker can also assist you with obtaining a commercial loan if you apply and are approved for a line of credit. Your credit card sales representative may also be able to arrange a merchant cash advance if you apply and get pre-approval.
Small business owners can also explore new debt and equity financing sources by looking at their current investments to see what could be tapped into. Your accountant or finance officer can assist you in exploring any of the options that may be open to you. Your current assets, liabilities, and net worth are the factors that will be examined in your business finance investment plan. Depending upon the needs of your business and the current financial health of your business’s revenue stream, different approaches to financing may be necessary. It would help if you always had an exit strategy not to hold the bag on bad investments or bad debts.
The Small Business Administration offers several options for small business financing. To find the option that is right for you, contact your local SBA office to discuss the different business loans and loan programs available to you. You may be surprised that you can obtain a business loan through one of the SBA’s loan programs even though you have bad credit. In fact, the Small Business Administration offers an online calculator for you to determine your eligibility for one of several SBA loans to help expand your business and reach new heights.
