When it comes to running a business, placing all of your apples in one basket isn’t the best way to go, especially for start-up businesses. During the early period, you may have to come up with different ways to finance your business. When you diversify your financing options, you get a chance to avoid dealing with cash flow issues early in your business. There are a lot of funding options available for businesses, big or small. Even if they have a low credit score, they can still qualify for business loans that will boost their business’ cash flow.
In this case, invoice financing, equipment financing, and other business financing options are typically easy to apply for. Oftentimes, it’s best to tap into different financing sources of capital for better flexibility.
Below are some of the most common financing sources for your business:
Banks are usually the first-place entrepreneurs go when seeking financing. Banks offer the lowest interest rates, making them the most ideal source of funding for businesses. Whether you need a long-term or short-term financing, you can trust banks to have every type of funding that will help cover the current needs of your business.
However, qualifying for traditional bank loans isn’t easy. They often have stringent requirements that make it harder for small businesses to comply. For instance, companies need to have an established credit background, which start-up companies don’t have. Another important thing is to present collateral which they can repossess should their clients fail to meet the required repayments.
Remember that when shopping for bank loans, whether for business or personal use, it’s always smart to consider different companies. Make sure that you choose the option that meets your personal needs, and won’t cause you to worry over have to repay.
SBA loans are sources of financing backed-up by the Small Business Administration which is provided by banks and other lending institutions. The rates for these loans are flexible and competitive. The government specifically established this program to let business owners qualify for traditional business loans.
The federal government’s SBA offers a lot of loan programs for business owners. But the most commonly used loan programs are the Basic 7(a) loan and the microloan program.
• Basic 7(a) Loan
The Basic 7(a) loan provided by the SBA is specifically designed for start-ups, expansion, and acquisition of businesses. It’s the most basic loan provided by the SBA. Entrepreneurs can apply for an SBA 7(a) loan at any participating lender in your area.
• Microloan Programs
SBA Microloan programs are designed to provide entrepreneurs with small loans. They can offer as much as $50,000 for businesses to add to their working capital, buy office furniture, or obtain equipment and machinery. SBA microloans are also offered by non-profit community-based lending organizations.
Business Credit Cards
Aside from bank loans, another popular financing choice of many business owners, especially start-ups, is a business credit card. In fact, studies have shown that 7% of businesses get their start-up working capital from business credit cards. But be sure you make your payments on time so you can avoid damaging your business’ creditworthiness.
While credit card companies typically charge high-interest rates, if your business has a clean credit background and a good credit rating, you may be able to qualify for lower rates and get better terms.
Credit cards can also come with other perks such as points or loyalty programs that you can claim as discounts. This can result in a great deal of savings for your business.
Credit cards, however, may only be good as a short-term solution. You should always consider other financing options to serve as your long-term financing solution.
Invoice Factoring Companies
Invoice factoring is a type of invoice financing where business owners sell their customer’s outstanding invoices to factoring companies. The business then can obtain as much as 90% of the total amount of the invoices they sell. This is ideal for companies that offer long payment terms to their customers.
What makes invoice factoring an ideal choice for some companies is that it offers convenience. Once invoices are bought by the factoring companies, they will do the payment collections. From there, they will get the payments for the cash you obtained upfront plus the other fees. The amount that’s left will then be returned to you.
Make the Best of Invoice Financing Startup Options
One of the most daunting tasks of starting a business is looking for financing sources to improve your working capital. The source you need to approach will depend on the amount you need.
Most of the time, entrepreneurs consider invoice financing startup options and the benefits they can offer. But as you continue your search for the best options and financing sources, be sure you explore different companies. This way, you’ll discover where you can get the most benefits.