Do you feel stressed and worried over financing your venture? If so, you’re not alone. Most small business owners run into cash flow issues at some point in their entrepreneurial journey. It’s a valid source of concern since cash flow and lack of funding are primary reasons small businesses fail.
Fortunately, there may be small business loans available to help you preserve your cash flow and build business credit. Here are five of them:
1. Business Credit Cards
Business credit cards can be an excellent financing strategy for your home-based business.
When you use credit cards to make everyday purchases, you’ll get at least a month to pay which gives you time to bring in revenue from sales. And when you need to borrow, your small business card offers a quick loan with no additional application required. Even cards with an interest rate of 16 to 18 percent are often cheaper than other small business financing options that frequently carry much higher rates.
Business credit cards can also help you build business credit. Excellent business credit is vital so your company can qualify for funding down the road, so choose credit cards from issuers that report to the primary business credit bureaus.
Before you apply for a business credit card, check your consumer credit scores, as personal credit scores are often a major factor in whether you will be approved. Your scores should generally be in the mid-600’s or above to qualify. .
2. Crowdfunding
Technology has paved the way for innovative funding options like crowdfunding. There are plenty of platforms available that allow you to source funds for your business from family, friends, acquaintances, and micro-investors.
The four major types of crowdfunding are:
- Rewards
- Debt
- Donations
- Equity
Except for debt-based crowdfunding, most crowdfunding platforms don’t charge interest, but there are fees involved, and they vary. Typically you’ll pay a processing fee for each donation, plus any fees the platform charges. Total costs of 8-12% of the amount funded is standard. You’ll also need to pay for marketing, which may include high-quality videos and photographs, online advertising and the like.
3. Line of Credit
Similar to a credit card, a line of credit lets you borrow up to a specific limit — say $30,000 — and use the funds when you need them.
These are usually short term loans. You only pay interest on the amount you borrow, which can save you money if you don’t need to borrow the full amount for which you’ve been approved.
How much you qualify for will depend on the bank’s approval requirements, which often include revenues, time in business, and your consumer and business credit score.
Traditional financial institutions such as banks and credit unions offer lines of credit as do a number of online lenders. There are even some SBA-guaranteed lending products that offer a line of credit.
4. Microloans
Microloans are small loans, usually for $50,000 or less. They can be used for working capital, inventory, supplies, furniture, fixtures, machinery, or equipment. They can be an especially good source of funding if your company has never borrowed from a bank before.
Some Community Development Financial Institutions (CDFIs) offer microloans. The SBA microloan program provides small loans through nonprofit lenders. Some microloans aim to help underserved entrepreneurs, and a microloan may be an option as a start-up loan to launch your venture.
Microlenders are likely to check the owner’s personal credit, but they are generally more flexible than traditional credit for those who have lower scores. Often, these loans also come with “technical assistance,” which includes mentoring or consulting to help the business succeed.
5. Vendor Terms
Suppliers or vendors may allow you to buy their products and then take 10 to 180 days to pay. This arrangement is called “net terms.” For example, if a vendor allows you to pay the invoice in full in 30 days, your terms are “net-30.” There is a wide variety of items you can purchase with terms, including office supplies, coffee and snacks, and janitorial supplies.
Often, vendors or suppliers who offer terms will check business credit. When these companies check your credit, it’s typically a “soft inquiry” that doesn’t affect the consumer credit score.
Ideally, the vendor or supplier then reports your purchases and payments to the business credit bureaus, which will help you establish credit for your company. Not all report, so check before you apply. (These vendors offer net-30 terms and report to business credit bureaus.)
Takeaways
These are just five small business financing options to consider. Although you may feel it’s prudent to stay debt-free, small business loans like these can help your business grow and thrive when used responsibly. Access to financing when you need it allows you to take advantage of potentially lucrative opportunities, as well as alleviate stress and worry when your cash flow is tight. Do your research, make sure you understand the terms of the loan you choose, and then get busy building a remarkable business.
