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Most business owners have long lists of ideas for improvement projects or business updates that could bring their businesses to the next level. If your New Year’s resolution was to stop delaying the projects on your to-do list, one of your first steps is to find the best option to finance your project. Maybe you’re ready for renovations or an expansion, or you’re eager to hire new employees. No matter what type of improvements you’re seeking, it’s important to learn about different types of small business funding options to find the best one for you. Here’s a quick reference for everything you should know as you begin this process.
Funding Options for Small Businesses:
Most of us are familiar with bank loans. These types of loans typically offer the lowest interest rates and the longest terms—but accordingly, they are also the most difficult to obtain. If you are pursuing a bank loan, you should prepare to wait months before actually receiving funds. Banks require a great deal of paperwork from prospective clients, and the manual credit review processes can take several months to complete.
If you have strong credit and can provide all necessary documentation and are seeking a larger loan, the bank loan process might be worth the investment of your time. But generally speaking, these loans are not easy to come by, and if your business plan doesn’t have everything in order and if you are looking for a loan of under $1 million, you might be better off seeking another option.
This is because banks are not the best parties to address the needs of small businesses. Many small businesses seeking loans are too small, relative to their cost of origination. In these cases, banks cannot make any significant profit and will therefore not pursue an agreement with a small business. Banks are most likely to loan against quality collateral like real estate to offset the risk of the loans they write, and they require close-to-perfect credit for any recipients.
Cash Advance and Merchant Cash Advance
Merchant cash advance lenders collect a fixed daily percentage from their customers’ credit card sales until the loan is paid back in full and should be used only when absolutely necessary. A high risk is associated with these products, which can be very harmful to your business. You should avoid cash advance and merchant cash advance to pay for long-term improvement projects and should pursue an alternate funding option for this type of capital.
Cash advance loans are not actually loans but a type of payment contract where fixed payments are debited from the borrower’s account daily. These daily-pay types of products have very high interest rates and do not permit businesses to start investing the funds before they are required to begin repaying them. These types of lenders generally put a lot of pressure on a business’s cash flow. When considering all the funding options available to a small business, this one should be seen as more of a last resort because of its high risks and the nature of how it must be repaid.
Fundation Small Business Loans
Our lending partner Fundation offers small business loans that can help you make the improvements you need to your business without lengthy waiting times for funds or pressure on your cash flow. Fundation offers affordable interest rates and loan terms of up to 4 years as flexible solutions for business owners. Fundation’s nonbank loans will let you begin your improvement project right away, providing the flexibility and support you need to succeed.
At Fundation, our payments are debited from your account only twice per month. Plus, our finalized small business loan application to funding can take as little as 3 days, so that you can begin making your business improvements without delays.
Regardless of the industry you work in, chances are that you need new equipment to help your business grow and improve. Did you know that your options for small business equipment financing are different from those designated for other loans? This is because when you begin the process to purchase new equipment, you have the option of leasing or financing it. This is a process similar to deciding whether to buy or lease a vehicle; if you opt to finance the equipment, the bank will put a lien on the equipment as collateral. If you instead move to lease the equipment, the bank will not put a lien on the equipment but likely will structure this as a capital lease, so that you will have the ability to purchase the equipment back for a nominal price at the end of the loan term. In both these funding scenarios, the loans are directly based on the specific equipment you plan to buy, and the terms are linked to the anticipated “useful life” of the equipment. A bank can help you get the equipment you need, but a number of specialty equipment leasing and alternative business financing companies have successfully entered this space and offer consumers a range of options.
Our lending partner Fundation offers equipment financing loans that are structured specifically to help restaurants, auto repair shops, doctors’ and dentists’ offices, and other small businesses make the investments they need in high-quality equipment.
The information contained on this page is for general informational purposes only. It is not legal advice and should not be relied upon in making borrowing decisions. Fundation loans are subject to lender approval.