There are many different types of funding sources for established, mid to large sized businesses. However, a small business often struggles with the requirements imposed by traditional financial options.
There are a few different options to consider for funding for small business. Many are not cost-effective and can result in significant interest, fees and repayment plans if the business will even qualify.
With regards to funding for small business, bank loans are the most difficult for most businesses to obtain. The bank typically needs three to five years of financial statements as well as either a personal guarantee or collateral to cover the loan.
Additionally, loans require long term repayment of principal and interest. This will impact future cash availability for your small business, which can be very difficult if you have more seasonal or cyclical sales.
Lines of Credit
Similar to a bank loan, a line of credit takes a lengthy application process and specific criteria. While you only pay interest on the amount of cash used out of the line, there may be monthly management fees that will exist even if you don’t use any of the funds.
Merchant Cash Advance
Credit card companies may advance or funding of a sum of money based on future credit and debit card sales. This will reduce your income for all sales by a percentage until the principal and interest is repaid. The interest on these advances can be substantial.
A very traditional and cost-effective option for funding for small business is through factoring. In this process, a business sells open accounts receivable (AR) to a factor. The factor provides you with a lump sum that is a percentage of the total.
The factor then assumes management of those ARs and collects from the customers. The factoring fee is deducted your business will receive the balance of any funds in your account.
Factoring offers a simple, direct and very fast option for funding a small company. Choose a factor with experience in your industry for the best rates and for top customer service.