When it comes to doing business and collecting business assets, the saying “You have to spend money to make money” certainly holds true. The concept of borrowing money from banks, credit agencies and other types of lenders is quite basic, and is a strategy almost every business takes when it needs to get off the ground or expand. If you are looking to expand your business and need more inventory and assets to do so, getting a loan is a great way to get the cash you need. The following are just some of the most popular types of loans for business owners looking to grow.
Line of credit
Business lines of credit were designed specifically for shortages in operating capital (cash flow). While they don’t make for very good long-term investments or major purchases, they do allow you to borrow a certain amount of capital annually. Lines of credit are generally less than $200,000 based on your accounts receivable and current inventory. You must pay this type of loan off quickly, however, because the interest and late fees can leave you with a lot more debt than you started with if you’re not careful.
Unsecured working capital loans
To get an unsecured working capital loan, your business must have a high level of creditworthiness or pay a higher-than-normal interest rate on an already-high interest loan. The major advantages for you are that these unsecured business loans are provided for working capital, which is perfect for accumulating assets, and you don’t have to put up any property as collateral.
In a simple sense, debt financing is the money you use to run your business. However, you can get long-term debt financing or short-term debt financing depending on what you need the money for. Short-term debt financing is also known as operational financing or short-term loans, because the repayment schedule is shorter and the money is generally used for things like purchasing inventory and supplies or paying employee wages.
Long-term debt financing, on the other hand, is better for investing in things like equipment, buildings, land or machinery that your organisation requires for growth. You can get this type of loan either as a secured or unsecured loan.
While micro-loans can be for up to $35,000, the average amount borrowed is generally around $13,000. These loans are great for smaller investments such as equipment, fixtures, furniture, inventory, machinery, supplies and working capital. The funds from these loans may be closely monitored to ensure they’re not being used for existing debt.
Merchant cash advance
A merchant cash advance is a lump-sum payment from a bank or other lender in exchange for a percentage of your credit/debit card sales. Basically, the lender might take payments directly from your card-swipe terminal until the loan has been paid off. This strategy is used most often by retail businesses that don’t qualify for bank loans. Plus, these cash advances aren’t technically loans; they are simply a sale of a portion of future credit or debit card sales.
These cash advances can be very beneficial if you want to buy an asset for your business quickly, and the best part is that your payments back to the lender will fluctuate based on your sales volume. This makes it far easier for you to manage your cash flow.