If you run a small business you will no doubt need to borrow money for various reasons. These can range from emergency funding needs up to paying for major expansions and office space. For each of these scenarios there are various loans which are appropriate to fund them. We will be discussing the small business loan types in today’s discussion.
Starting with the small and fast in our list of small business loan types, we will discuss the business cash advance. These function very much like personal advances. The criteria are very much based on your current revenue and you must repay the loans in 6 months or less typically. These have very short approval times, as low as 72 hours, and high interest rates. Think of these as for emergency purposes only. They can be a great way to deal with the unexpected but should be used sparingly. Make sure you will be able to pay them back on the schedule provided or the late fees can make them even more expensive still.
The other way to borrow for your small company is to get a line of credit. Lines of credit are not like other loans in that you are not given the money upon acceptance. Instead, you have an amount available which you can borrow against over and over. For example, if you have a $25,000 line of credit and use $15,000 to pay for a month’s expenses, you will have $10,000 available. If you then repay this fifteen thousand, perhaps once your customers pay you, you will have $25,000 available again to use. This can be great to pay for your monthly expenses and deal with cash flow fluctuations. Many companies will use a credit line in lieu of petty cash.
Now let’s assume that you have a major purchase to make like buying real estate for your company. This will be more complex than the other forms of lending. You will need to get approved by a traditional lender for a long term loan, and they will likely have strict requirements.
For one, you will need to demonstrate your business history and show that you have consistent or improving revenue over time. Also many lenders will want to see how much you spend each month in unavoidable fixed costs and the average of your variable costs. In essence they are budgeting as if they were you to see if you will be able to make the loan payments. You may even have to demonstrate how you plan to use the loan, or back it with a specific asset. If you buy property the loan will be back by the property.