Shopping For A Small Business Loan? Who’s The Right Fit For You?

shopping cart with loan papers in it

Are you in the market for a Small Business Loan?

Some business owners may not be aware of all the financial products that are available to them, and some might not know the differences between some of them.  In this post, we will go over briefly the different types of financing, and the differences between them so you will be able to determine which one is best for your company.

Personal Credit Cards
Let’s start with the most common way to finance your business, your personal credit cards.  Most small businesses have insufficient funding at the beginning, and will result with using personal credit cards from the owner(s) of the business.  If you max out those cards and the business fails, you’re still personally responsible for paying those debts off.

Borrowing from your family or friends or both!
Borrowing from friends or family is most likely the second most common way start up businesses get their financing.  These are considered private investments and/or investors, which can become a headache and cause friction if you don’t have the terms down in detail.  It wouldn’t hurt to have an attorney draw some agreements up so everyone is on the same page.  The last thing you want is is lose a friendship or get in a heated argument with a relative over their financial investment with your business.

Purchase Order Financing
This is basically an option that will allow your business to accept purchase orders, regardless of your existing capital cash flow.  This is a great solution to businesses who does not have the funds to complete their next transaction.

Accounts Receivable Financing
This is typically a short term loan, often used by businesses to increase working capital and increase it’s cash flow.  This is where a business will sell their accounts receivables to a third party at a discount. For this discount the third party would advance or loan the business for capital. This is an excellent solution for companies who have outstanding invoices, they can access capital in exchange for those invoices.

Term Loans
This type of loan is one of the most common type of loans, that is repaid in regular payments over a specific time frame. The terms are normally anywhere from one to 10 years, and is structured differently for every lender. Established businesses with good credit and that can afford to wait for the financing will typically levitate to this route to minimize the monthly payments and expenses for the loan.

Business Cash Advance aka Merchant Cash Advance
Simply put, this is a business cash advance in exchange for a percentage of the future credit card transactions. This is a great solution for businesses that don’t qualify for a traditional loan from the bank. Turn around time for the business to have the capital is a lot faster than trying to get a loan from the local bank.

Business Line of Credit
You will find these are provided by banks or credit unions most of the time. Interest is only accrued on the amount that is drawn off the credit line. If no funds are drawn or advanced, there is no interest charged. This is great for a business that wants a back up plan if capital is not accessible at any time. Drawbacks to line of credits would be the possibility of the rate might be adjustable and can go up at anytime.

SBA loans aka Small Business Administration Loans
These loans are provided by banks, credit unions and lenders who are backed by the federal government also know as Small Business Administration (SBA). They have a variety of loan programs for business owners. Keep in mind, the guidelines are tough and have higher requirements, and time frames are lengthy.

Equipment Financing
This loan is where the lender owns the equipment and then leases it back to the business. There are several options for that business, they can purchase the equipment at the end of the lease, extend the lease, or start a new lease with newer equipment. This can be more expensive that other financing solutions, but this is easier and faster to get funded.

shopping cart with money in it

So if you’re shopping for a loan, give us a call and we’ll get you the  financing faster than our competition!

With the variety of lending products available to your company, your next step is to decide which program best suits your needs. If you need assistance on choosing which programs are best for your business, feel free to give us a call and one of our loan experts will be happy to guide you in the right direction. If your business is located near or in Orange County, feel free to come by and sit with one of our loan specialists. Or you can call First Capital Business Finance at 888-565-6632.



Print