Picking a financing option can be tough for small businesses. There are loans that are ideal for startup businesses, and there are loans that are only best for established businesses. To choose the proper loan, it helps to understand what options are available.
Bank loans are offered by many community banks and national lenders. A bank loan is generally given to many types of small business owners. The availability of this kind of loan, however, has decreased over the last five years. A small business owner who has an efficient credit history and good cash flow should choose a bank loan. A bank loan offers lower interest rates when compared to other types of financing. However, to take this particular option, you must have a business plan, collateral, and detailed financial data.
Local banks that are smaller generally have simpler methods for loans. However, bigger institutions provide better interest rates. Business owners must also consider the amount of time it takes to process a bank loan. It takes several week to complete the application and approval process. If you have a good financial history, and you have time to wait for the loan application to be processed, you should consider a bank loan.
Many businesses have launched successfully by gaining funds from a personal credit card. The reason why is because the cash is readily available. Also, personal card cards are easy to get; obtaining a traditional business loan is tougher. However, this doesn’t mean that using a credit card is the best choose for your business. When choosing a loan option, you must understand the interest rates. Credit cards generally have very high interest rates than other loans. Using a credit card to fund a business also has risks. For example, if the business fails, you may damage your credit. This will prevent you from purchasing a car or a home later.
Credit cards are not a standard type of business loan. They should be used as a back up source of financing. Also, when using a credit card, you must pay back the amount owed in a reasonable amount of time. If you fail to do this, you will put your credit at risk.
Lines Of Credit
Most banks offer loans and lines of credit. A line of credit offers benefits because it is flexible. You can supplement your cash flow to take advantage of certain business opportunities.
Many lines of credit provided by banks range from $10,000 to $100,000. A line of credit can be accessed from a bank credit card. By using a line of credit for business expenses, you can organize personal and business purchases and track account data.
Friends And Family Loans
Obtaining a loan from a friend or family member also has benefits. For example, the funds are generally available faster after the terms are set. Also, the interest rate is usually less than what a bank or other lender may offer. However, when borrowing money from friends or family, there are strings attached most of the time. To avoid issues later, it is best to spell out the terms and clearly determine if the money is a gift or a loan.