Unless you are blessed with a money tree or the proverbial rich uncle, just about every business needs to borrow or secure financing in one way or another. Whether it is to take on new business opportunities, lease new warehouse space, increase factory production, hire a batch of new employees or get the company through a rough period, having to secure cash is a familiar business issue.
Get a Small Business Loan If You Can
If you are an established business with a high credit score and year-after-year revenue growth, a short term loan or long term loan still remains a great way to secure low-priced financing. According to Forbes.com, though such term loans have become more difficult to obtain for many businesses and start-ups, they are still available. If your business meets the underwriting criteria and does not need the money immediately, a term loan may be less expensive than other financing options such as account receivables factoring. Small business loan rates vary from bank to bank; today, other financing institutions such as invoice factoring companies also offer mainstay small business loans so it pays to shop around and compare their rates, conditions, and terms.
Cross Your I’s and Dot Your T’s When Applying for Small Business Loans
Unlike other financing options such as factoring accounts receivables, loans for small business by definition will require you to take on new debt and put down property or assets for collateral. You will also be required to follow the terms of the contractual agreement to the letter or risk forfeiting your collateral or taking on additional fees or penalties. Short term loans are generally for 1-2 years and long term loans are between 3-5 years so it is important to understand the purpose of the loan so that it can be paid back accordingly. For instance, it wouldn’t make sense to secure a short-term loan for a new equipment purchase you think will take up to five years to pay back.
The financing or lending institution will generally require you to state your purpose for your small business loan and the strategy for how you will use your money. The rationale you state will be used in part to determine your creditworthiness. The pros of this sort of planning are that it will require you to clearly set out your plan and build your strategy if you haven’t already done so. The cons are that doing so will generally take some time. Invoice factoring generally does not require applicants to provide extensive reasoning or plans with regard to how they will use the financing but may ask more general questions about it. That’s another real benefit of factoring.