At some point in the lifetime of your business, you will seek out additional funding. Anticipating the need for business loans is a balance of monitoring cash flow statements and industry trends. Having a complete understanding of all aspects of your business expenses is critical when making a loan decision. Let’s take a look at some of the most popular loan options for your business.
A traditional loan is what most people consider when examining funding options. Your business plan is scrutinized and credit risk is determined in the underwriting process. Once approved, you are responsible for monthly payments based on principal and interest for the length of the loan.
Hard Money Loan
A hard money loan is not offered by traditional lenders. These lenders typically identify themselves as investors in your business. They require collateral in the form of property or assets. As investors, the lender may distribute funds in stages, requiring performance standards to be met before additional funding is released. They may ask to be involved in certain business decisions. Leaning on their knowledge can be a benefit to your company.
Purchase Order Financing
Also known as factoring, you provide a lender with outstanding purchase orders that customers have to pay. The lender then collects those outstanding invoices. You receive a majority of the invoiced amount, and the lender receives the balance. Purchase order financing is an ideal solution if your business is experiencing negative cash flow or if you are struggling to collect debt on time.
Line of Credit
Lenders examine your available collateral and creditworthiness to determine the amount of money you can borrow at a given time. Unlike traditional business loans, a line of credit does not require repayment or accrue interest until you request the money. These are ideal for businesses that want to have an established option to increase cash flow. Be aware the lenders will require specific standards of operation are maintained for the credit line to remain available.
Most small business owners find that utilizing business credit cards can be an ideal solution to maintain positive cash flow. Many credit cards offer benefits, such as travel awards, based on your purchase history. While awards are enticing, it is important to balance the benefit of the awards with the cost of fees and interest rates for unpaid balances.
Understanding the ways to increase cash flow through business loans is an important factor in managing your business.