Starting up a business is hard. It will be a struggle from the workforce to the financing side. Luckily for us, there are many things that we can go for to make starting a business a little bit easier, especially when it comes to finances. Speaking of finances, there are several ways that entrepreneurs access capital funding for their business, like personal savings, bank loans, investors, and so on. That said, we will discuss your options in today’s article. Let’s start.
A term loan is a general term for most installment loans. There are different criteria for the type of loans you can get based on specifics like equipment, merchant cash advance, etc. However, the general concept is still the same. Once approved, you will get a lump sum of cash, which you will repay over a predetermined period every month.
Usually, you can get these term loans from your traditional bank, but because of the snail-paced processing in those places, nowadays, the more popular option is to get one from an online lender like CreditNinja.com. The loan amount is usually based on prerequisites like your credit score and credit report, but in general, you can get a loan for up to a million dollars.
The Small Business Administration usually funds small loans for businesses. The federal government guarantees these loans, usually granted to entrepreneurs looking to start their businesses. Usually, it has a maximum amount of $5 million and is generally used to buy real estate and the construction of the establishment. It can also be used exclusively for capital and even debt refinance for debt incurred before the approval of the loan.
The SBA also funds microloans that are aimed at smaller businesses or startups. Most of the time, the maximum amount you can get from these microloans is $5000, which entrepreneurs can use for capital or debt refinancing. But of course, you must be approved before the SBA can grant you these loans. Usually, you have to meet the requirements before you can apply.
An equipment loan is a type of loan under the general term loan category. It’s a type of loan granted, given that you will use it to buy new equipment or repair an existing one. However, equipment loans aren’t only used to buy machinery but small devices as well, as long as it’s something that your business needs to operate.
Usually, the amount of the loan is determined by the price of the equipment you want to buy. Also, it’s generally a secure loan in which the equipment you bought will count as collateral and will be seized if you decide to default on the loan.
Unlike other loans, however, you need to provide a down payment for the equipment, and the rest will be paid off with the loan. Most equipment loans have term limits of up to 25 years and a minimum of a million.
Business Line of Credit
A business line of credit works similarly to a personal line of credit which you can use for most things you need, but in this case, it’s meant for your business. It provides more flexibility than a term loan since you can use it to buy anything you need for your business.
Just like a personal line of credit, you can borrow from this line of credit, and you only have to pay interest for the amount of money you want to borrow from it. However, they do have a lot of additional costs.
For example, if you borrow money from your business line of credit to buy equipment, you usually have to borrow maintenance fees from it. However, before you get approved for a business line of credit, your business has to prove that it has strong revenue and good credit.
Merchant Cash Advance
If your business is struggling to stay afloat and needs support for its cash flow, then a merchant cash advance is probably what you need. With a merchant cash advance, you’ll get a lump sum upfront, which you’ll have to pay for depending on how you want it.
This is because instead of paying it through installments, you will have to pay for it by withholding a percentage of your credit or debit sales daily or weekly. However, they are usually known for very high-interest rates. But merchant cash advances are fast, and they aren’t as stringent with the requirements as the other source of financing in this list.
If you’re having trouble finding finances for your business, you probably are looking in the wrong place. You can obtain financing through the sources we discussed in this article in many ways. Remember that each has pros and cons, and you should continually assess first if the one you picked is the best for your business’s financial situation.