A comprehensive guide to 10 business financing options [Updated]
- 1 A comprehensive guide to 10 business financing options [Updated]
- 1.1 1. Bank loans and SBA loans
- 1.2 2. Credit Card Financing
- 1.3 3. Business credit line
- 1.4 4. Equipment financing
- 1.5 5. Merchant cash advance (MCA)
- 1.6 6. Invoice factoring
- 1.7 7. Invoice financing
- 1.8 8. Purchase order financing
- 1.9 9. Peer-to-peer loans
- 1.10 10. Crowdfunding
A comprehensive guide to 10 business financing options [Updated]
Are you looking for financing to operate or expand your small business and want to know where to get a small business loan? As a small business owner, you now have more financing options than ever before-thanks to many web-based creative companies offering new alternatives, such as crowdfunding and peer-to-peer loans. Bank? They are just the beginning.
This is an updated guide to 10 corporate financing options that we should know when seeking funding for small businesses.
For those who want to learn more, we provide you with links to detailed and comprehensive guides for each type of corporate financing on our list.
1. Bank loans and SBA loans
When you hear the term “small business loan”, the first type of corporate financing that usually comes to mind is traditional bank loans. Bank loans come in many forms (short-term and long-term) and can be used for multiple purposes (working capital, expansion, equipment procurement, commercial real estate). Sometimes these loans are secured by collateral; sometimes they are not. The most important thing to know about small business bank loans? You will need to demonstrate stability (for example, in the form of income).
As for the best place to get a bank loan, it depends on your business needs-each bank has its own set of products and requirements. No matter where you go to get a loan, you may encounter the option of applying for a Small Business Administration (SBA) loan.A popular bank loan sub-type, a large part of each SBA loan consists of SBA, a government agency, provides entrepreneurs with information and resources to help them develop a strong business.
This SBA guarantee makes the idea of lending to small business owners more attractive to some banks, but due to strict requirements, loans may be difficult to obtain (in order to be eligible for SBA loans, you need to have a good credit score, measurable Cash flow and reliable business plan, and other qualifications). Nonetheless, SBA loans are attractive to many small business owners because they provide many choices and flexibility in how they use their funds.In addition, SBA also provides various Loan options for a few business owners And companies that operate in underserved markets.
Consider an SBA loan and want to know if it is suitable for your type of business funding? Get all the details in our super detailed SBA loan understanding guide.
2. Credit Card Financing
If you need to buy equipment or materials for your small business, a credit card — or, in a critical juncture, a credit card cash advance — is an easy option that can save you the trouble of applying for other types of small business loans. However, credit card financing can be risky, and you should strongly consider using it only for short-term needs. If you take this route, please consider paying off your card in time to avoid high financial costs, and look for cards that offer cash back awards or air miles.
Use a credit card to pay for business expenses? Be sure to avoid these 3 common business credit card mistakes.
3. Business credit line
Commercial credit lines allow you to use a certain amount of funds as needed, usually based on your business’s cash flow and credit score (commercial credit lines function more like credit cards than small business loans, but none of them are the same). Before you really need the funds, you do not need to use the credit line, and you will not accrue interest on the unused funds. However, once you borrow from it, you will need to start paying the amount you used immediately. As you repay the money you actually borrowed, your credit line will gradually be replenished (which means you can use the money again).
Learn all about credit lines in our in-depth guide to commercial credit lines.
4. Equipment financing
Some loan companies specialize in providing funds for the purchase of commercial equipment. Another option? Ask the company where you purchased the equipment for financing-many companies offer their own financing plans. ]
- If you are considering providing equipment loans or financing for your business, please check our comprehensive equipment loan and financing guide.
5. Merchant cash advance (MCA)
In this type of financing, you will get an advance payment to predict future credit card sales. Daily payments are made automatically via ACH transfers and are usually based on the percentage of credit card transactions that day-so on the day you make less, you pay less.
Want to learn more about MCA?View our Comparison of MCA with other popular SMB financing options.
6. Invoice factoring
Factoring is a system where you can sell unpaid invoices to a third-party “factoring” company at a discounted price (usually around 80% of the invoice value). Then, the factoring company takes over the work of collecting unpaid invoices from customers on your behalf (they will refund 80% to you and the rest as their expenses). Factoring is helpful for small businesses operating on a net 30 to net 90 payment system because it allows the business to get payment immediately instead of waiting until the payment is officially due. What are the main disadvantages of invoice factoring? You have not received the full payment. However, in some cases, it can help alleviate cash flow problems.
Learn more in our comprehensive guide to invoice factoring and how it differs from invoice financing.
7. Invoice financing
This is one of the small business financing solutions we provide at Fundbox. Similar to factorization, Invoice financing You can help improve your cash flow by allowing you to borrow money based on unpaid invoices, so you don’t have to wait for payment for products that have been delivered or services that have been provided. However, unlike factoring solutions, invoice financing through Fundbox allows you to obtain 100% of the invoice value, up to your approved credit limit. In addition, you can also maintain relationships with customers.
Learn more about invoice financing.
8. Purchase order financing
Through purchase order financing, lenders provide funds to purchase inventory or materials to small businesses that do not have the cash on hand to complete large orders. After the order is shipped, the lender collects the payment from the customer, deducts the fee, and transfers the invoice balance back to the business at hand. Please note that purchase order lending does not apply to potential orders-you need to have actual orders on the books to be eligible.
Are you curious about PO financing? Our purchase order financing guide covers all important details.
9. Peer-to-peer loans
Peer-to-peer lending websites are online marketplaces where businesses and individuals can obtain loans from individual investors. The online market manages transactions as a custodial service and charges fees in return. If other methods do not work, this may be a good way to obtain small short-term loans.
As a variant of P2P lending, crowdfunding sites allow companies to promote their ideas (usually new inventions or products) and seek financing from interested individuals. The difference is that the money is not a loan, but a return from your business. The most common form is your company’s equity in these early investors, or even like getting your products or services in advance. If your idea sparks public interest, it is possible (though unlikely) to raise hundreds of thousands of dollars through crowdfunding.Although this sounds remote, it may be an option considered by some small businesses because The crowdfunding market is expected to grow by nearly US$200 billion by 2025.
Shortcomings? If for some reason you cannot fulfill your promise to investors, they will be very disappointed.