Small business financing can take many different forms. The alternatives you have are as distinctive as your company, so it’s critical that you understand what’s available and what supports your cash flow the most.
One of the most common types of small company loans is the term loan. The workings of a term loan are probably familiar to you if you’ve ever taken out a mortgage or financed the purchase of a vehicle. Term loans are provided by a lender as a lump sum of money that must be repaid over time in fixed payments until the principal and any associated interest are repaid (and any fees). Repayment terms might be short term (less than 12 months), medium term (between 1 and 3 years), or long term (more than 3 years). Term loans may need a personal guarantee and are often secured by a lien on your company’s assets, giving the lender the right to take those assets if you don’t repay the loan.
Merchant Cash Advance Small Business Loans
MCAs (merchant cash advances) differ from small company loans in a few key ways. Instead, they’re a lump-sum cash advance against your potential credit card earnings. The issuer decides the advanced amount, which can range from $2,500 to $400,000, depending on your typical monthly credit card sales. For instance, through the network of loan partners of Funding Circle, this sum ranges between $5,000 and $500,000. It could take anything from 90 days and two and a half years to pay back the cash advance because it is paid back as a percentage of your daily credit card income. Stacking, or adding too many MCAs at once, is one of the main hazards of MCAs and can entirely deplete your income flow.
Working Capital Loans
A working capital loan is a brief-term loan designed to assist a business in meeting its ongoing operational expenses. It can be used to cover costs like paying rent, making salary, or paying off debt. A working capital loan isn’t intended to be used to purchase long-term investments or assets. Through Funding Circle, you may apply for a working capital loan and get a response in as little as 24 hours. 2 One of the best features of this small business loan is how quickly applications are approved. Find out more information about applying with Funding Circle.
Line of Credit
A versatile method of short-term funding is a line of credit. You have a predetermined amount of credit that you can use as you see fit. You don’t have to make payments or pay interest on a company line of credit until the money is actually used. A line of credit is perfect for unforeseen costs so that you are not dependent on cash flow in times of need. For instance, replacing a large piece of equipment or making up for a seasonal drop in sales. A line of credit might be available for $5,000 or as much as $500,000. This range is $6,000 to $250,000 when you submit an application through Funding Circle’s network of financing partners.
Compared to a Small Business Loans, invoice factoring is more like an MCA. Your accounts receivables are sold to an invoice factoring business (commonly known as a “factor”) at a discounted price in exchange for two lump-sum payments. Amounts between 70 and 90 percent of the factored bills are paid upfront as the advance (which represents the discounted invoices), and the remaining amount (less any fees) is paid once your clients have paid the invoices in full. Between 85 and 90% of the first lump money is provided by Funding Circle’s network of lending partners. The ideal candidates for invoice factoring are companies that have delayed payment terms with their clients yet need to cover inventory expenditures or upfront expenses.
Businesses frequently record purchases using either the accrual technique or the cash approach. The accrual technique records transactions as soon as the sale is complete. Only after payment has been received is this recorded using the cash method.
For instance, if you sell something in January and get paid $200 in February, you might record that in January’s books using the accrual approach rather than February’s using the cash method.
How SBA helps small businesses get Small Business Loans
The U.S. Small Business Administration helps small businesses get funding by setting guidelines for loans and reducing lender risk. These SBA-backed loans make it easier for small businesses to get the funding they need.
In order to get an SBA-backed loan:
- Visit our Loans page to find the loan that best suits your need
- Enter your Zip Code on Lender Match to find a lender in your area
- Apply for a loan through your local lender
- Lenders will approve and help you manage your loan
Creates immediate snapshot.
Can reduce tax burden.
More complex to manage.
Potentially deceiving figures.
Shows cash flow clearly.
Easier to understand.
Limits predictive value.
Less long-term clarity.