Posted by Dennis Jao

The Best Business Funding Options

The Best Business Funding Options

Small business funds can help you launch your startup, hire more employees, or open a new location. The right kind of funding for your small business will largely depend on what you need the capital for, but other factors will come into play, such as how much capital you need, your willingness to borrow, etc.

Between banks, online lenders, investors, and more creative means (like small business donations), there are a variety of sources you can turn to to find the financing your business needs.


Traditional term loan

A traditional term loan is perhaps the easiest type of funding for a small business. Borrow a fixed amount of money, usually for specific business purposes, and repay the fixed term loan with interest.

Since these are low-interest business loans (especially if they come from a bank), business owners will need to have strong credit to qualify, and their businesses must be financially strong.

Best for? Generally, long-term business loans will be one of the best small business financing options for mature entrepreneurs who want to borrow money for an extended period (more than two years) and want a predictable monthly payment.

Term loans are great for financing business expansion, working capital needs, or refinancing other debt.

Where to get it? If you think a term loan is a right option for financing small businesses, apply for a bank loan first (which should give you the best interest rates).

On the other hand, if you can't qualify for a bank loan or need to access funds faster, you can consider online lenders.


SBA loan

The Small Business Administration (SBA) helps entrepreneurs obtain funds for business needs in the form of low-cost, long-term business loans, which are often the most desirable types of financing for small businesses.

Although the SBA itself does not lend money directly to businesses, the agency encourages creditors (like banks) to approve small business loans, guaranteeing all or part of their loans. For creditors, this means less risk and higher rewards.

However, since SBA loans are so desirable for small businesses, you will need to meet a number of specific requirements and go through a lengthy application process to qualify.

Best for? SBA loans are one of the best types of financing for small businesses. With the qualifying requirements, strong borrowers looking for long-term, low-interest loans will be more suitable for SBA loans.

Where to get it? SBA loans are issued by credit institutions approved by the SBA, usually banks and credit unions. While there are some variations depending on the individual SBA loan program, many major US banks typically offer SBA loans.

That being said, it is important to remember that these lenders will determine your eligibility for an SBA loan. In general, you must have a good credit history, and your business must be profitable or have an attractive business plan with positive projections. If approved by an SBA lender, it will also determine the loan's interest rate and repayment term within certain limits set by the SBA.


A business line of credit

Unlike the first two small business financing options we talked about, a business line of credit works much like a credit card - it has a certain amount of capital that you can use when you need it and only pay interest on what you used.

Also, after you return the withdrawn funds, you will have access to all that money again. For this reason, business lines of credit are also called revolving lines of credit or rotating lines of credit.

So with a business line of credit, you can get more working capital, buy inventory, manage seasonal cash flow, pay off other debt, or meet virtually any other business need. Having a line of credit available to pay for unforeseen emergencies is also great.

Business lines of credit are a little more difficult to obtain than a loan because they are a constant source of financing for small businesses; if you qualify for one, the peace of mind will definitely be worth it.

Best for? A business line of credit will be one of the best financing options for small businesses, for businesses with unpredictable or seasonal capital needs, and for those who want the flexibility to raise funds "as needed."

Where to get it? If you think a business line of credit might be right for you, there are a variety of lenders you can work with to access this type of financing.

Many traditional banks offer business lines of credit, but you can explore your options with other online lenders.


Business credit card

Business credit cards work the same as personal credit cards but are designed to be used only for business purposes and to cover business expenses.

Business credit cards generally have higher spending limits than personal credit cards, along with lower interest rates and better introductory offers.

New businesses can also benefit from business credit cards. While you need good credit to qualify for the best business credit cards, there are options for business owners to rebuild their credit. If you need a large amount of equity (over $ 50,000), a term loan or SBA loan will be a more effective option than a business credit card.

Best for? Business credit cards can be a useful financial tool for any business owner.

However, compared to many of the other options on our list, a credit card will be one of the best financing options for entrepreneurs who don't need a lot of venture capital funds and don't need to have access to money but want the ease of access to business financing in the form of credit.

Where to find it? If you're looking for a business credit card to use for financing small businesses, you can start with large issuers like American Express, Chase, and Capital One to see what they have to offer.


Equipment Financing

Equipment financing, as the name suggests, is a form of debt financing specific to the purchase of equipment for your business; with this type of small business financing, the equipment itself acts as collateral for the loan, which means the lender is more likely to borrow it, approve it, even if you don't have great credits or finances.

That said, equipment financing can be structured in two ways: a lease or a loan. With equipment rental, you don't own the equipment; you pay to rent it. You pay monthly, and you can sometimes purchase the equipment at the end of the contract.

Equipment loans are more like traditional term loans, with a fixed payment schedule and interest based on the funds needed to purchase the equipment.

Best for? Equipment financing will be one of the best small business financing options for businesses that need capital to buy or lease a vehicle, computer, tractor, or other specialized machinery or equipment for their operations.

Where to find it? Some banks offer specialized equipment financing programs; however, like most bank loans, you will need the highest odds to access these funds. For faster financing with more flexible requirements, you can look to online lenders to finance your business infrastructure needs.


Bottom Line

Ultimately, choosing the right small business funding option for you depends on a number of factors unique to you, your business, and your financial needs.

The good news is that today there are more options than ever for businesses in need of financing. Whether you are looking for debt financing, equity financing, or a more creative financing solution, you will have a variety of options to explore, compare and consider.


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Dennis Jao
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