If your company has been running for at least six months, then by the standards of some business financing options you have officially left the world of startups and have become an operating small business. This opens up a wide array of loans for small businesses that are generally not available to startup businesses.
What Are My Small Business Loan Options?
Depending on the actual length of time your business has been open, these solutions can range from traditional unsecured business loans or online small business loans backed by the Small Business Administration (or SBA, a U.S. government agency created to provide support to small businesses), to merchant cash advances or bank statement financing, to equipment leasing options.
Unsecured Small Business Loans
Unsecured small business loans are a good option for businesses that have been in operation for two years or more and have a good, established business credit profile.
Since these loans for small businesses are not tied to any collateral and is based primarily on credit worthiness and the ability to repay, interest rates may be higher than if you secure the loan with an asset. In addition to an unsecured small business loan (which would usually have a fixed interest rate and a set term to pay back the loan), there is also an option to obtain an unsecured business line of credit.
With a business line of credit you will only have to pay back the amount of the line you access at any given time, so if you need money for cash flow from time to time but don’t need a lump sum all at once, this can be a great choice. A business credit card is a form of an unsecured line of credit.
Merchant Cash Advance and Bank Statement Financing
Merchant cash advances and bank statement financing are two kinds of alternative business financing options that have grown in popularity. Since the Great Recession of 2009, unsecured lending has stayed rigid, making it difficult for small business to get the quick access to capital needed to rebound from economic lows. It’s more complicated for small business that haven’t been in operation for several years or if your business credit is poor or non-existent.
With a merchant cash advance, the lending institution will provide the business with an advance against future credit card or debit card sales. Bank statement financing is a business loan that takes into account your monthly business bank account balance as a determining factor in the approval process. The lender will review your credit, but even if you have bad credit you can still qualify for this loan for your small business if you have healthy daily balances in your business banking accounts. This will give the lender confidence in the stability of your company and in your ability to repay the loan. Bank statement financing is not secured by any asset so it is considered a form of unsecured loan for small businesses.
Equipment Leasing and Sale Leaseback Options
Equipment leasing is very common for small businesses when the money you are looking to borrow for your company will be used for certain types of equipment. Leasing equipment allows you to keep on hand cash that you would have otherwise used for a lump sum purchase. Equipment leasing is not a small business loan, but rather another way to get the equipment that your business needs to operate without the huge out of pocket expense.
Sales leasebacks (the term is short for “sale-and-leaseback”) is something that can be used to generate cash when you already own the equipment outright. In this scenario, you can sell the equipment you own to a financial institution. That institution will then lease the same equipment back to you. While this does cause a small business owner to lose an existing asset, it can provide needed liquidity for immediate cash flow needs or for investing into growing the business.
What Online Small Business Loan Is Right For Me?
The online loan that is best for your small business will depend on the length of time you have been in business, your business credit profile (in certain cases your personal credit as well), the purpose of the loan, the industry you are in, whether you accept credit card payments, and whether you have accounts payable, among other factors.