If your business is open and generating revenue, working capital could give you a hand in the future that lies ahead or help you get through the recovery this 2021. Think about creating sustainable new revenue streams that will generate additional cash flow during fast and slow business cycles.
At some point, you may need to inject outside cash into your business, whether to cover a short-term cash flow problem or to invest for future growth. From big banks to alternative funders that offer financing products for small businesses, there are plenty of options to choose from to find the right funding source to work with your business.
Here's a simple guide to help you get a better sense when it comes to picking out the best fit for you and your business financing needs.
1. SBA Loans:
A suitable small business funding option if you have time and a great credit score are the numerous programs provided by the Small Business Administration. loans are obtained through banks and guaranteed by the SBA.
To get an SBA loan, first, you'll need to find a lender that offers SBA loans (not all banks do) and then pick the most suitable program, depending on its terms and potential uses of funds. If you're unsure where to start, the SBA compiles a list of their 100 most active lenders within the 7(a)-loan program (the most popular SBA loan program that can be used for almost any business purpose).
The Brightside: SBA loans are guaranteed by the government and offer longer repayment terms and lower interest rates. Their Average Percentage Rate (APR) ranges from 5.50% to 8%. And they typically offer larger amounts, from $30,000 to $5 million.
The Downside: If you are looking to solve your business financing needs fast, you might want to look elsewhere. The loan application process for SBA loans is very time-consuming. The requirements are rigorous; only those with good personal credit (typically 690 or higher), healthy business finances, and the flexibility to wait for funding should apply. Even if you qualify and need the money for an eligible purpose, SBA loans can still take quite a while to secure.
2. Short and Medium Term Loans
Short-term loans are traditional loan products with terms shorter than a year, but they can include those with terms as long as 18 months. A medium-term loan typically refers to a loan with periods more extended than one year, this option usually requires monthly payments, and although they may not be as affordable as bank loans, they're often cheaper than short-term loans from online lenders.
The Brightside: For access to fast capital, short-term loans will often be your best bet. The best small business lenders for these loans, like medium-term loans, will be online, alternative lenders who have simpler application processes and more lenient requirements. Eligibility varies depending on the bank, your location, and available loan programs. Still, in general, you may be able to get a short-term loan if you've been in business for about a year, have a personal credit score of 550+, and make $50,000 or more in annual revenues.
The Downside: Short-term loans are likely to be more expensive. Also, most banks that offer these types of loans will want collateral to secure a business loan, typically enough to cover the loan in full. Collateral can include real estate, inventory, cash, or equipment. It will be valued according to what the bank expects to get for the collateral in a sale, not the collateral's actual value. The qualifications for a medium-term loan are also typically strict; you'll need at least a year in business, a 600+ credit score, and about $100,000+ in annual revenue.
3. Conventional Bank Loans
Banks are the largest business lending institutions and probably the first place you think of when getting a small business loan. If you have an excellent credit history, and your business has already been open for at least a year, you can apply for a loan through your bank or credit union. But even with a perfect credit history, your loan needs may not be big enough for a bank to bother with.
The Brightside: The biggest pluses of conventional bank loans are that they carry low interest rates and, because a federal agency is not involved, the approval process can be faster than getting an SBA loan.
The Downside: Traditional small business funding entities won't let you get very far in their application process without a perfect credit score. Banks will usually ask for scores higher than 700. Banks will also want to dig into your revenue reports, time in business, cash flow statements, financial documents, and that you count on a solid business plan. Overall, it’s difficult to get approved for a conventional bank loan, so not all small businesses can qualify for this option.
4. Lines of Credit
A business line of credit is a revolving credit facility – funding available to business owners so that they may borrow as needed. It includes regular (usually monthly) interest payments, but just against the amount borrowed. A credit line gives your business a cash cushion since you have pre-approved access to a specific amount of money that you can draw from as needed. There are two types of credit lines: fixed and revolving. If you get a fixed loan, you have one-time access to the funds. With a revolving line of credit, you pay your balance, and the amount resets.
The Brightside: Lines of credit offer a lot of flexibility since they aren't structured loans with fixed payments, but they only last for a certain period.
The Downside: Before your line of credit expires, you need to have paid back the loan in full, gotten an extension, or converted it to a structured loan. So, this isn't the best choice if you need long-term financing for a large project. Also, qualifying for a small business line of credit can be challenging. You'll need to prove you've been in business for at least two years and show that your business revenues are growing. And to be more specific, an unsecured line of credit requires you to have an impeccable credit history, and a secured line of credit will ask you to put down collateral that's worth at least as much as the loan you hope to secure.
But, if, like many small business owners, you don't qualify for a credit line you still have options.
5. Alternative Funding – Fast Access to Funds, Flexible Approvals
If all of the listed options seem impersonal or at far reach from your small business standing point, then you should consider alternative funding- far from being a product, this financing option works as a strategy specifically designed to understand and meet your business needs.
One Park Financial funding programs work as meaningful and substantial connections with funders that believe that small and mid-sized businesses can succeed too. We truly understand the potential that small business owners have and the great difference that working capital can make when it comes to reaching the goals you’ve set out to find this year. In fact, our company was also funded by small business owners. And throughout the years we’ve worked hard to establish trust and transparency among hundreds of clients.
And the best part is that our funding programs include a professional team ready to assist you every step of the way, so you won't feel alone or puzzled when it comes to picking the most suitable option your small business needs. If your business has been opened for more than three months and generates revenues of $5,000 or higher, you too can be a part of this network of thriving business owners. Get pre-qualified in less than 5 minutes today!