A variety of funding options are available for small businesses. The choice depends on various factors like the number of funds needed, its purpose, the financial position of the company, the debt payback time, ROI, and more. According to Fred Auzenne, a business leader who holds the apex position in a business advisory firm, raising capital is one of the reasons for small business owners to look for funding options.
The fund might help expand the business, seizing some business opportunities, improving the cash flow and liquidity, debt consolidation, or serving some other beneficial purpose. Smooth operations of small businesses largely depend on the company’s financial position for which periodical funding might be necessary, especially in the initial stages.
Here are some funding options that small businesses can make use of.
Working capital term loan
Maintaining a smooth cash flow is a huge challenge for small businesses. That often find itself in a bind as poor cash flow throttles all business activities. In such situations, businesses need immediate funds to make up for the working capital in the short term. To resume smooth operations by meeting all financial commitments. An availing working capital loan can come in handy to overcome the cash crisis in the form of a traditional term loan taken for a specific purpose. You can pay back the loan in fixed monthly installments over the tenure of the loan that you choose. Longer payback time and fixed monthly payments are the attractions of this type of funding.
Low-cost business loans are available from SBA that does not offer the loans on its own. But arranges it through various lenders to meet the demand of small businesses for long-term loans. The SBA acts as a catalyst to facilitate loans for small businesses says, Fred Auzenne. And even incentivizes the lenders for lending to small businesses. At the same time. It stands as a guarantor for the entire or part of the loan. The arrangement is advantageous for borrowers who can avail of loans without any collateral. While lenders are also happy as the risks are lower due to SBA’s intervention. A good credit score allows borrowers to avail SBA loans quickly from SBA-approved lenders.
Business Line of credit
A line of credit is a credit facility established by a bank or some other financial institution in favor of a small business. That allows it to avail credit up to a specific limit whenever the need arises. The arrangement is quite similar to issuing a credit card. The advantage of this arrangement is that you pay the interest only on the amount of credit utilized. The credit limit goes up once again on paying back the amount utilized or any part of it. The arrangement gives confidence to business owners who can treat the credit line as a lifeline whenever they need quick money.
It is a type of debt financing meant exclusively for buying equipment. The equipment serves as collateral for the loan, and loans are readily available while downplaying the credit score.
It is an easy way of borrowing but only for buying equipment.