Today the economy has definitely improved from the recession and financial crisis that began in 2008, yet small businesses today can still face hurdles when it comes to financing their small business. It does not matter much weather you need the money for start up costs or to expand your rapidly growing small business, finding those funds can be challenging. We have already discussed how to find a small business loan in our earlier series on small business financing, but what if you cannot secure a small business loan, or need more funding than a small loan will provide? Lets explore additional options that might help you over the hurdle.
This has some risk tied to it. Sure you could break out the plastic when needed, but can you repay it in full? If you fall behind on your payments, your credit rating could tank severely. Credit cards can work for short term financial needs, such as inventory needs. If you do use credit cards for short term needs, make sure that you also pay off the total debt in a short term, else you could end up with long term debt due to interest payments. Using a credit card for small business financing is certainly not the optimal way to finance your small business, but it can work in a pinch.
Merchant Cash Advances
This is where a lender lends you some money, and the debt is repaid by your future credit card income. You basically give up a percentage of each credit card sale to the lender. This can quickly get costly, but it can keep you in business. The plus to this form of borrowing is that there are no regular fixed payments required by the lender, as the lender just takes a portion of whatever credit card income you receive.
Hard Money Loans
This should be a last resort for any business, as this route to small business financing carries the most risk. Instead of being financed based on your businesses credit worthiness, it is instead financed solely on your assets. You obtain the loan, and the lender receives collateral. If you default on the loan, all of your businesses collateral can be seized.
SBA backed small business loans
If you have been shot down by banks, but have substantial assets, you may very well qualify for a Small Business Administration backed loan. The advantage here is that the Small Business Administration makes a loan guarantee to lenders for a large portion of your loan, this in turn makes lenders more apt to make a loan to said small business. In fact the SBA’s number on function today is to serve as a guarantor of loans for small businesses. If you have SBA backing, you are more likely to be approved for a small loan, even if you have been denied before. The guaranty for these loans is 90%, which makes it a much easier choice for banks.
Financing a small business is always a challenge. This web site features reviews of lenders which specialize in lending to businesses of all credit worthiness, so if you have had a difficult time finding a loan, be sure to read review on websites like the BBB or on other finance websites.