Choosing the Best Business Financing Option for Your Small Business

Disclaimer: Information in the revenue-based financing articles is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the revenue-based financing articles often covers financial products that Biz2Credit does not currently offer.

Business financing options are plenty, but much of it depends on your needs and qualifying for the needed capital. Whether you're launching, expanding, or managing day-to-day operations, having access to capital can be a vital tool. From traditional lenders to online lenders, there are plenty of options to get your capital needs met.

Here’s what you need to know, and how to navigate the process.

Why Do Businesses Need Financing?

Business owners typically consider financing through small business loans when the business is expanding or needs to get through a slow season. Business development typically takes capital, and business financing is a great way to get capital needed.

Financial institutions and online lenders are typically the intermediaries to solve this capital issue through their various loan programs. SBA loans are also available to get the working capital needed.

A new business may have a harder time with obtaining financing as they don’t have the history to meet lender requirements. There are alternatives like crowdfunding platforms to get funding needs met.

For small business owners, much of the financing terms will be determined by a few factors in the application process, including: personal credit score, annual revenue, time in business, the type of business, and existing debt obligations.

How Does Business Financing Work?

Here are the steps to get the small business financing you need to keep your efforts going:

• Identify the need: Identify why your business needs extra cash. It could be to purchase more inventory, meet payroll needs, or purchase new equipment.
• Find a lender that can qualify your business: To do this, research lenders, credit unions, or online lenders that aim to lend money in your business sector.
• Apply for a loan: Once you find lenders that match your wants, submit applications for borrowing. The lenders will look at qualifiers like financial statements, business plans, and credit history to see if you have good credit or bad credit.
• Decide which is right for you: if you’re approved for more than one loan, you can then read through the loan amounts, interest rates, repayment schedules, and other fees to find the best deal.
• Use capital and repay diligently: Once the capital is deposited in your business bank account, you can then use the funds for the needs you decide. However, it’s just as important to maintain on-time payments to avoid fees and other potential headaches.

How To Choose the Best Business Financing Option For a Business

As you’re applying for lending, here are the five points to consider when comparing lending options.

• Assess the length of time you need funding for

  Businesses can qualify for either short-term or long-term funding. So before you apply, determine how long you’ll need the funding to select the best loan structure for your business.

• Know your cost of funds

  When you borrow money, you’ll have to pay interest and other fees along the way. As you apply for funds, be sure to compare those ancillary costs to find the best deal.

• Compare repayment schedules and terms

  Upon approval, you can ask for repayment terms to consider how it will impact monthly cash flow. Additionally, if you plan to pay it off faster, you can ask about potential prepayment penalties.

Final Thoughts

Business financing options and access to capital are an essential part of running a successful small business. Bank loans and other funding options can be a great way to get the financing needed.

Once you sort through small business funding options and get the funding needed, be sure to consider the monthly payments needed in your monthly cash flow. You don’t want to have a debt payment that overburdens your balance sheet.

FAQs about Small Business Financing Options

What is the best loan option for a small business?

SBA loans are highly regarded due to their favorable terms, lower interest rates, and extended repayment periods. For businesses seeking quick access to funds, online lenders or short-term loans may be more suitable, offering faster approvals and flexibility despite potentially higher interest rates.

Where are small business financing options?

You can explore various options such as personal savings, small business loans (like SBA loans or a business line of credit), or crowdfunding. Additionally, you may consider seeking angel investors, venture capital, or applying for business grants.

What type of financing do small businesses use?

Small businesses commonly use a mix of financing options, including traditional bank loans, SBA loans, and business credit cards to their businesses. Bootstrapping, equipment loans, and microloans are also use commonly to get the capital needed.

What is the difference between equity financing and debt financing for a business?

Equity financing involves selling shares of a company, while debt financing entails borrowing money that must be repaid with interest and fees.

What are the alternatives to traditional bank loans for financing a business?

Credit unions, online lenders and kickstarter initiatives can help small business owners finance their operations.