Once you’ve created a business plan and identified startup costs, it’s time to explore funding options. While traditional financing structures such as bank loans tend to have stringent eligibility criteria, there may be alternative funding sources that can assist your small business’s launch.
Fortunately, the diverse landscape оf small business funding extends beyond traditional banks, offering solutions like online lenders with faster approvals and merchant cash advances for immediate access tо capital.
Online lenders usually offer fast turnaround and have more lenient credit approval requirements, while merchant cash advance providers might let you apply online and be approved within several hours.
- Business Loans
Businesses looking for loans have several options available to them, from conventional loans offered through online lenders or large banks to alternative financing methods that may include fixed or floating interest rates with financial covenants that must be adhered to by the borrower.
Traditional bank loans, with their comprehensive business plan and revenue projection requirements, can be challenging for some startups. Working capital loans, equipment loans, and invoice factoring/financing loans offer alternative paths, while merchant cash advance companies provide a unique source оf capital for businesses by purchasing a portion оf future credit card receivables іn exchange for immediate funds.
- Business Line of Credit
Business lines of credit provide short-term funding solutions for your business needs, with flexible repayment periods ranging from one to five years and withdrawal privileges similar to credit cards during their draw period – with interest only charged on what was actually taken out.
Lender requirements typically consist of financial statements, income tax returns and assets to ensure the business can pay back its line of credit. Furthermore, lenders may require a personal guarantee from its owner(s).
Online lenders usually have more accommodating requirements for small businesses, and some can approve and fund applications in just days. It is important to remember, though, that taking on debt could impact a company’s credit score negatively.
- Personal Loans
Personal loans are unsecured installment loans with fixed interest rates that require you to make monthly payments over an agreed-upon time frame. They can be used for unexpected expenses or debt consolidation purposes.
Numerous lenders provide online application systems that make applying for personal loans easy, with funds often arriving quickly- sometimes as soon as the same or next day! Once approved, funds may be directly deposited into your account.
Personal loans may be an ideal option if your savings account has run dry and your business has yet to generate consistent revenue. However, these types of loans tend to come with higher rates than small business loans and may not be tax deductible; you will also need sufficient income and creditworthiness evidenced before qualifying.
- Personal Credit Cards
If you own a personal credit card with a high limit, using it to fund your business could be an option. Doing this could allow you to gain the money without incurring more debt or selling equity; however, keep in mind that doing this may put personal assets at risk; only choose this form of funding if your business will succeed enough to repay what was borrowed back to you.
These examples have been automatically collected from online sources to illustrate the meaning of “cash-strapped.” Their inclusion does not imply any endorsement by Cambridge Dictionary editors.
- Merchant Cash Advance
Merchant cash advance companies provide quick access to working capital for businesses reliant on debit and credit card sales as revenue. Approval times are fast, loan marketplaces facilitate financing processes quickly and they don’t require collateral or personal guarantees but could prove expensive depending on which lender and your company’s creditworthiness you use.
MCAs are calculated on a percentage of monthly credit and debit card sales, and offer variable repayment terms that fluctuate with business sales. They’re not federally regulated or as transparent as loans or business credit cards; furthermore, MCA payments do not report back to major credit bureaus, making them incapable of helping your company build its credit score.