Different Ways Small Businesses Obtain Money

There are several different ways that businesses can obtain money. Whether you are a startup business or have been established for years, there will be times when you need a loan. Some of the many ways to obtain money for your business are outlined, below:

  • Term loans are the most common type of loan. Many businesses will seek this type of loan in periods of financial growth, but also to sustain their daily business activities in difficult economic times. Getting the best rate you can on a term loan is important, so do your homework and maintain an excellent credit history, as well as being able to prove that you can pay back the loan in a timely fashion.
  • Short term loans are usually set up for one year or less. They are also repaid in a lump sum, instead of making monthly payments. They are usually for a small amount - less than $100,000.
  • Equipment financing is less risky for the lender, and the equipment purchased serves as collateral for the loan. It's also less risky for the borrower, because if you're unable to make your payments, all you lose is the equipment you bought.
  • Lines of credit are used as a safeguard against cash flow problems. The financial institution will allow you to borrow against a certain amount of money by taking increments when needed. If you don't pay back the money borrowed quickly, however, a line of credit can become very costly. They're only designed for temporary cash shortfalls.
  • Credit card advances. This is a loan based on your track record and your expected future business. You can get a fairly good rate on this type of loan because credit card sales are such a good estimation of future earnings.

Be sure to research all the loans available to find the one that is right for your particular needs.

Another means of getting cash quickly is called factoring, or receivables financing. Factoring is basically selling your invoices to a third party. Rather than waiting for your customers to pay you in 30, 60, or 90 days, you can get the funds immediately. Of course, there is always a price, so be prepared to pay a fee of 3% to 5% for this service. If you have slow paying customers or slow cash flow, factoring may be a good option for you.

Here are some other tips to help ensure you get the loan you need:

  • Establish a relationship with the lender. The more they know you, the more they will trust you and the more likely they will be to lend you money.
  • Make sure your business plan is in writing and is optimistic about future earnings of your business. Many people underestimate the importance of a written business plan to the likelihood of getting approved for a loan.
  • Address payback issues, in particular how you will pay the lender back if your numbers fall short of your projections.
  • Avoid asking for more or less money than you need. Use your business plan to determine the amount of money you need, instead of justifying the amount of money you want.
  • Your best chance of success in getting your loan approved is going to a lender that specializes in small business loans. Lenders who are familiar with your industry are also a good bet.

Just because your business is small doesn't mean that you can't get the money you need to help it grow. As you probably already know, doing your research and preparing for the loan application process is your best bet at getting your loan approved.

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