Securing a business loan to finance your small business is easier said than done: according to a Gallup/Wells Fargo survey, 77% of small business owners turn to personal savings for initial funding. And, even if you are an established business, approval for business loans isn’t a given. A recent member survey from the National Small Business Association reports that 27% could not get access to funding they needed.
Getting the business financing you need is possible even if a bank turns you down. Traditionally, banks have been the logical lending solution for businesses of all sizes, small businesses included. However, since the credit crunch, business loans—in particular, those made to small businesses—have dried up. If the bank can’t make a hefty return, they see no point in giving you a business loan. Luckily, the business loan void left by the banks has been quickly filled by alternative lenders that can provide your small business with different financing options in a short amount of time.
Types of Business Loans
When deciding your options for business loans, it’s important to remember that alternative lenders are in the same business as you and the banks: to make money. Always read the fine print to be sure your alternative business loan doesn’t come loaded with high fees that make the APR skyrocket. If these aren’t suitable, other alternative financing options exist (some of which don’t even require you to take out a business loan).
Business Lines of Credit
Business lines of credit are popular financing options because it offers flexibility. Once your business is approved, the lender sets a maximum limit you can borrow with no restrictions or stipulations on what you do with the business loan. Similar to credit cards, business lines of credit charge you interest for the amount of money you draw, not on the maximum limit. As long you make the minimum payment and don’t go over your limit, you can use your line of credit for any of your business’s needs, whether that is to repair a piece of equipment or manage cash flow fluctuations from seasonal sales.
If your business uses a large piece of machinery or equipment, an equipment business loan can be used to spread out the cost. Typically, a down payment on these types of business loans is between 10 and 20 percent but can go as low as 5 percent. Depending on the terms, the equipment might serve as collateral for the loan. Another option might be to lease the equipment instead of purchasing it outright.
If your business is having cash flow problems because you are waiting on invoices to be paid, invoice financing (also called factoring) is a business loan option where you sell your unpaid invoices to a lender at a discount. The lender provides you with most of the amount owed upfront and holds a portion of the outstanding amount (usually 20 percent) until the invoice is paid in full. While invoice financing might be a good option for a business loan, keep in mind that others might perceive your company as struggling and might be hesitant to engage.
Commercial Mortgage Business Loans
Borrowing money in the form of a commercial mortgage business loan can buy, develop, or refinance commercial properties, such as warehouses, mixed-use buildings, or retail centers.
Franchise Business Loans
If you can expand your business into a franchise, a franchise loan can help you finance the transition. As a franchisee, you can use a franchise loan for both standard operating expenses and franchise-specific ones such as marketing and licensing fees that franchisors usually require upfront. You can use a traditional-term business loan to finance your franchise or work with a lender that offers loans specifically for franchises.
SBA Business Loans
The Small Business Administration is a government agency that provides support and resources to small businesses, including guarantees for business loans. SBA-backed business loans have the guarantee of a U.S. government agency but are executed by approved commercial lenders. If approved, you will receive perks exclusive to SBA-guaranteed business loans, such as competitive terms, counseling and education, and unique benefits such as lower down payments, flexible overhead requirements, and no collateral required. To learn more about SBA business loans, visit their website or contact a professional at AS-IS Loans.
Alternatives to Business Loans
Business loans aren’t the only financial solution available if you need capital. Restructuring or settling debts is another way to free up capital for your business.
Renegotiate Credit Terms with Suppliers
If you are having cash flow problems, a conversation with your suppliers around payment schedules can free up enough surplus cash (that would be the equivalent of taking out a short-term business loan). If your business has proven to be a loyal customer, try renegotiating your credit and pricing terms with vendors for a longer-term solution. A good, loyal customer is valuable and they will not want to lose you!
Restructure or Consolidate Your Existing Business Debt
If you have several debts you are trying to pay off, merging them into one affordable payment can make everything more manageable. For larger debts, restructuring or settling it outright can be an effective solution. You can even pay off a significant part of the original sum but not all of it and renegotiate the rest. With the debt settled or renegotiated and your payments lowered, you may not need a business loan at all.
If you are exploring different business loans — but are unsure about the best option — there is no shame in enlisting the help of experts. Contact the professionals at AS-IS Loans and receive valuable advice and information on the best business loan for you. Our team of experts has helped businesses of all types and sizes and we pride ourselves on our ability to deliver the highly relevant information a business needs to make an informed decision about their financial future.