As a new business owner, it can be frustrating to consider securing funding to get your company off the ground. Luckily, there are many options to make the most of your money – small business loans, lines of credit, or hard money loans, to name a few. In addition to loan options, consider evaluating the advantages and disadvantages of traditional versus non-traditional lenders. However, before you begin finding a lender, you should understand the most common reasons new businesses need cash.
Real Estate Investment
Purchasing real estate for an office, warehouse, or manufacturing facility may be your first investment. Commercial real estate loans typically have lower interest rates because the property serves as collateral. While it is in the lender’s best interest for you to fulfill the terms of the loan, the bank protects itself. The lender collects the asset should you default on the loan.
Hiring additional staff allows you to focus on specific tasks. While you want to ensure you can pay the salary, a loan offsets recruiting and training expenses. Many lenders offer loans specifically designed to meet a company’s staffing requirements.
Cash Flow Infusion
A great business defines strategies for seasonal sales declines. You already know the first few years in business can be challenging. You may not have enough savings to cover expenses during a slow time. A line of credit or merchant cash advance can be just what your business needs to maintain a positive cash flow.
Equipment is anything from manufacturing equipment to delivery vehicles to employee workstations. Discovering funding sources for equipment can be challenging. While you may prefer to purchase some equipment with cash, a loan is often the most equitable decision. Lenders often require the equipment you are financing to serve as your collateral. You can negotiate lower interest rates. Equipment leasing is an alternative to business loans.
Developing new products or services is necessary for your business. Once other companies see your success, they will try to replicate it, and you will need to make improvements to maintain your market share. Research and development come with costs – additional payroll, equipment, and patent applications. Lenders that specialize in developing businesses are often supportive of the challenges that face a new entrepreneur. They will help you build a financing structure to support product development.
Now that you have identified the primary reasons for locating funding sources, you can evaluate what works for your business. Making wise lending decisions helps your company grow.