Friday, 11 August 2017
Business Loans: What Are Your Options ?
Borrowing money under right situation can give the boost to small business which it needs to reach its next milestone or to get off the ground. There are several options available to small business owners’ seeking out loans and credit, but it’s essential to know which finance lending option is better for your business and for demonstrating that your small business is a good risk, what information you will need. It has been observed that start-up business mainly rely on personal loans from friends, family or borrow against credit cards for funding their ventures. Business loans, as well as lines of credit, are easier to obtain more established businesses, as they have a track record of management and cash flow to report. Still several other small businesses look Private Equity, Venture Capital, Seed Capital, Growth Capital, Working Capital and Mezzanine Financing as an alternative of traditional bank loans options. Below are some ways that may help you in determining the type of lending that suits your small business at any development stage.
Business Credit Cards
If your business is incorporated, get a credit card for it in order to keep finances of business and personal expenses separate. As this will help you in keeping record of your business expenditure and personal ones by categorizing expenses, and will help you in establishing good credit history at the time when your business needs urgent funding. Take advantage of credit card and perks rewards such as zero-percent introductory rates, cash back or airline miles, balance transfer deals, and cards offering discounts for office supplies and gas. But always make sure that long-running balance along with high interest rates might eat profits of your firm. And your credits can be damaged, if you fall behind on payments. Always restrict your card usage to important business functions, as well as keep your balance below or at 30% of your credit limit.
Borrow From Friends or Family
Most of the start-up business owners look for family or friends for initial funding of their business without any established business history. So, its better look for those friends or family members who can give you cash and business guidance as well. Prepare a business plan and ask for enough funds that take the business to the next level and it will be easy to lend money again if you prove him that you will repay on time, if in case you need it later.
Line Of Credit
For ongoing needs such as inventory management or seasonal payroll, a line of credit many proffer an open-ended access to cash if your small business has uneven cash flow. You can still qualify for the full requested amount, and then one can borrow as well as repay funds on the time. For long-term investments such as property purchase or making a larger equipment purchase, then a line of credit is not appropriate. So, better be prepared for submitting financial details of business plus tax returns and information of bank account for securing the credit. Furthermore, the yearly financial review is also required.
Generally, small business lenders give loan to businesses that was operating profitably for continuous two years. A broad range of documents are required to be provided to the small business owners, so that the lender can easily analyze cash flow as well as the ability of company to repay loan along with interest. Also, first thing you should do is to calculate the actual financing cost, then project your monthly cash flow accordingly in order to see at what stage you might require need extra cash. And always remember that lenders may not provide 100% finance. Moreover, consider whether the funds borrowed by you will help in generating more revenue in the coming years or not because if not, then you may be better off waiting. Rather leverage any capital infusion through which you can get into sales and marketing, with the aim of generating cash for the business in the future. And in this way, you may not require to borrow again.