Financing options for small businesses

Small businesses have unique needs that often stem from cash flow issues. They need money to start a new project, but they haven’t been paid yet for the last project. They can’t just close until their money comes in, so what can they do? There are many financing solutions available, such as eCapital small business financing that can help solve short-term and long-term financial problems. Here are some other commonly used solutions to consider.

Bank loans

The most obvious financing option for small businesses is a bank loan. Usually, this is how many small businesses start out because they often don’t have the capital to put their business in a place where they can start making money. But loans can also be a good option for both short-term and long-term cash flow problems, as long as you have the credit rating and collateral available to secure the loan.

With a traditional loan, you’ll often get fairly low interest rates and decent payment terms, but these can be hard to come by, especially after the last recession when financial institutions tightened their requirements.

Small business loans are a type of bank loan that caters specifically to businesses of a certain size. They are easier to obtain than traditional loans, but they require a lot of paperwork and can take a long time to materialize. They’re federally backed, so banks are more willing to lend to businesses with lower credit ratings than traditional loans, but you’ll still need to meet specific requirements to get the money.

Online loans are growing in popularity with small businesses, especially those with little or no credit. They also have a streamlined application process, which can be great for busy homeowners who don’t have time to sit down with a banker and fill out tons of paperwork. Applications can often be approved and the loan funded within 24 hours, but their interest rates are usually higher than traditional or small business loans, especially if you have poor credit.

Loans can be a good place to start looking for financing, but there are other options that might make more sense.

Factoring of invoices

Invoice factoring is a process where you sell your unpaid invoices to a factoring company at a reduced price (the factoring fee). The factoring company immediately pays you an advance on the balance and then works to collect the full balance from your customers. For example, suppose you have an outstanding bill for $10,000. A factoring company buys it and advances 90% of the total value, so you receive $9,000 upfront as prepayment. The remaining $1,000 is held in reserve until the invoice is paid in full. Once the factoring company receives the full invoice amount, they release the reserve and transfer the $1,000 balance due to your business account. Factoring costs are deducted either from the advance or from the reserve.

This financing option is a smart choice for small businesses that need cash fast. They can sell their invoices and get paid the same day, which can be essential for businesses that need to pay their payroll, pay their rent, or buy materials for the next project, whatever the cash needs. The best part is that the invoices are their collateral, so they don’t have to put up company assets to get the money they need.

Small Business Grants

Grants are basically free money, so if you can get a grant, take it. This money is set aside to help small businesses get established or grow and you don’t have to worry about paying it back. Non-profits, corporations, and governments typically source grants, and they are extremely difficult to obtain. This is because everyone loves free money and the competition for these grants is high, but also, applying for grants is hard work.

Often companies hire outside companies to write their grant proposals because the business owners may not have the skills to write a proposal that will persuade someone to give them money. So in this case you may have to spend money to get a lot more money. Be aware, however, that some grants require money to be spent on specific things, so you may not be able to use that money to solve cash flow problems.

Crowdfunding

A recent type of small business financing that has been successful for many businesses is called crowdfunding. This is where you try to get multiple investors to give your company money to put your idea or product into action. While this sounds like a good idea, and it’s a good idea if you can get a lot of people interested in your business, it still takes a lot of work to introduce yourself to the right people.

Depending on the amount of money you need to raise, a crowdfunding effort may be worthwhile. If you need a lot of money quickly, it may be best to try other options.

Conclusion

If you’re struggling with cash flow for your small business, try one of these financing options. Just be sure to weigh the pros and cons of each carefully to ensure that the one you choose will work for you.

Darcy J. Skinner