When your business is ready for growth, it can mark the start of a new exciting phase. Your growth trajectory could be stunted by a lack of cash to invest in the necessary investments for sustainable growth, such as hiring more staff, upgrading equipment, buying more inventory, or extending hours.
Growth is almost always dependent on access to capital. There are many options available to small businesses that need funding. It’s challenging to determine which financing option is suitable for your company. Here are seven financing options that you may consider:
You can apply for a conventional bank loan.
A loan can be compared to a conventional bank loan. The bank will provide a repayment schedule, interest rate, and monthly payment if approved. Bank loans are usually the cheapest option, but they can be slow, require a lot of paperwork, and may only be available to some. Check the fine print of any online lender offering term loans. You often pay a high-interest rate to get your money quickly.
SBA loans are available.
A Small Business Administration loan is a loan that’s made by a lender and partially guaranteed by Small Business Administration. This guarantee allows banks to charge low-interest rates. This loan type also has more favorable repayment terms. SBA loans can take up to a couple of weeks to be processed, so this loan type may not suit you if you are in a hurry.
Secure a line of business credit.
A credit line offers small businesses a flexible option. You can withdraw up to the limit of the line, but you will pay interest. A bank will typically review your finances yearly to determine whether the credit line should be renewed. A traditional bank offers lower interest rates but takes longer and has stricter requirements. Online lenders are more likely to approve and lend quickly but charge higher interest rates.
Get a credit card for your business.
Credit cards may be a better option for some businesses than a line credit. They offer more flexibility and are easier to use. A credit card is less formal than a line of credit, and you’ll have to prove your creditworthiness. It also speeds up the process of obtaining capital. Just like your personal credit cards, using them responsibly will build your credit history. But if you are not careful, it’s easy to rack up debt and ruin your business credit profile.
Look for equipment financing.
Equipment loans are provided by banks or other lenders that allow you to purchase new equipment essential to your business. With this type of loan, you can borrow up to a large portion of the total cost. You will own the equipment once you pay off the loan, just like with a mortgage or car loan.
Consider equity financing.
Equity funding is the sale of shares in your company. You can sell shares to individual investors (“angel investors”), venture capital firms, banks, or other companies investing in small and startup businesses. To invest in a privately held company, an individual must typically be an accredited investor. This means they must have a certain amount of income or net worth. Equity financing is an excellent way to get not only cash but also external expertise for your company. You’re essentially giving up some control over your business, so you must be comfortable with your chosen investor. This is also a process that requires a lot more consideration. Consult a lawyer or accountant to ensure that you use the correct paperwork and help structure your business.
A cash advance is an option.
Cash advances are one of the fastest methods to obtain cash. It is financing secured by future sales. If you are a Clover merchant, you can receive Working Capital based on the average sales of your credit cards. The repayment is tied to your credit card sales, so you don’t get stuck with an unsustainable loan payment after a lousy week. Merchants who are approved quickly receive their funds within five to seven days.
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