Types of Business Financing

· Typically, most small businesses can qualify for a short term loan, given they have past experience in the related field. Business owners will need to provide tax information and basic loan applications. The interest rate and loan amount will depend on your business revenues, history, and credit score.

· These types of loans are sort of like a “normal” business loan. Generally, these loans provide a fixed payment over 1 to 5 years and are normally backed by collateral such as a car or another tangible asset. They can also be used for a wide range of business purposes.

· Term loans are forms of debt financing. Business owners can use them to meet short-term financing needs like managing cash flow, new business opportunities, or working capital. These types of loans are provided by both traditional and nontraditional lenders. Any business that has been in operation for more than two years with good credit can utilize a short term loan.

· Generally, most lenders will consider your credit score, time in business, and possible collateral to determine whether or not the small business owner will be able to get the loan. It is in the best interest of the business owner to have excellent credit, bulletproof P&L statements, and a record of its bank statements.

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· Short term loan rates range from eight to thirteen percent. Typically, these loans have fixed interest rates and fixed monthly payments. This structure provides the same payments over the life of the loan and you will know exactly when the loan will be paid off.

· A business equipment loan is very similar to an auto loan, where the purchased item itself acts as collateral. Because of this, qualifying for an equipment loan can be relatively easy. Approvals are typically based on credit score, years in business, financial history and value of the equipment.

· Equipment financing is used exclusively to acquire business-use equipment. Because every industry has it’s own type of equipment, the types of equipment loans are diverse. For nearly every type of equipment you can think of there’s going to be a lender that finances that specific equipment.

· Every type of equipment and every type of industry, but here are a couple examples. In the construction industry, there are lenders that offer equipment financing for heavy machinery. In agriculture, there are lenders that specifically help small farmers.

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· Equipment financing interest rates range from seven to forty-five percent. With equipment financing, the purchased equipment itself is used as collateral for the loan. There are also lenders who will lend on application only as long as collateral is available and a down payment of 50% is available as well.

· Relatively easy to obtain.
· Adds to net value.
· Leads to increased revenue.

· Only can be used for purchase of equipment.
· UCC filing against business.
· A/R and PO financing.

· Most lenders will require the possession of an open bank account. Some businesses may be required to prove financial history of two or more years. And lending institutions will consider the small business’s credit score.

· A line of credit is an amount of money provided by a lender, which an individual can spend at will, either by credit or check, provided they pay some amount back each month.

· Generally, most small businesses can qualify for a business line of credit if they have a credit score of 560 or higher. You will need to show your tenure in business and provide collateral to back the loan.

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· Line of credit interest rates range from eight to twenty-four percent. The higher your credit score the better your rate will be. A traditional line of credit with a rate as low as prime+ can be obtained with a 680+ credit. If your credit is challenged at the moment then a non-traditional loan can give you a good option with higher rates.

· Only pay interest on funds drawn.
· Credit is available when you need it.
· It is suitable for the majority of business needs.

· May require collateral in some cases.
· Higher interest rates if you have a low credit score.
· There is a personal guarantee.

· When getting an SBA loan be prepared to give a pint of blood with it. This is your standard government red tape loan. There are standard size requirements, financial standing, and you must be in a for-profit industry. The borrower has to meet the SBA’s credit requirements and cannot be able to access other financing options that offer reasonable terms.

· The U.S. Small Business Administration (SBA) is a federal agency committed to supporting the growth and development of small businesses. The SBA does not personally provide the loans, however, they establish the guidelines for them and then guarantee a percentage of the loan, (in case of default) which minimizes the risk for their lending partners.

· The CAPLines program, for loans up to $5 million, is designed to help small businesses meet their short-term and cyclical working capital needs.

· The International Trade Loan, for loans up to $5 million offers a 90% guarantee for fixed assets and working capital for businesses that plan to start or continue exporting.

· The Business and Industry (B&I) Guaranteed Loan Program helps create jobs and stimulate rural economies by providing financial backing for rural business. Loan proceeds may be used for working capital, machinery and equipment, building and real estate and certain types of debt refinancing.

· The FSA “Farm Ownership” loans and “Operating Loans” offer a 90% guarantee on loans up to $1,392,000 (amount adjusted annually based on inflation).

· Loan amounts range from $35,000 – $5mm and are available for a wide variety of business purposes.

· The borrower has tried and cannot access capital elsewhere under reasonable terms. Generally, the borrower must have good credit, an accurate business plan, up-to-date financial projections, and not fall under any restricted business industries.

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· SBA loan interest rates are generally prime+, meaning an interest rate banks charge their preferred customers, or those with the highest credit ratings. The cost and repayment structure will also be dependent on the program you choose.

· SBA financing up to 90%.
· Loan terms up to 25 years.
· Fixed and variable rate options.

· Lots of paperwork.
· May require collateral.
· There is a strict acceptance criteria.

· This type of financing is innovative, unique, and easy to qualify for, but must be used in the right situations. As you do your homework consider things such as reputation, ratings, and client feedback.

· One type is the cash advance loan. The most popular way is to have the lender look at the last 4-6 months of bank statements to determine the cash flow of the business and advance the money as soon as the next day. The loan will be paid back as a decided percentage of all deposits is withheld to pay the advance back on a daily basis. The other type of quick advance is done by getting the aging reports on a business’s credit card revenue. A third party will then collect a suitable amount to pay the loan back by daily withholding a percentage of the credit card deposits. The loan will then be paid back over an average of 3 to 12 months. These loans are non-traditional but serve their purpose although rates can be much higher.

· A cash advance allows a business to borrow against future earnings. Requirements for this type of financing are extremely lenient due to the nature and terms of the loan. Generally, any business that needs access to fast working capital can qualify.

· Normally, credit is not pulled and financial documents are not required for approval. Popular loans are granted after the lender is able to look at the last 4-6 months of bank statements to determine the cash flow of the business.

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· Merchant cash advance interest rates range from eighteen to forty percent. Traditional cash advance loans will have lower interest rates compared to non-traditional loans. The bottom line is to know how much capital you’re going to need, who your lender is, what their reputation is, and what you can afford.

· Easy to qualify for this type of advance.
· You’re not giving up equity.
· No collateral is required.

· Higher interest rates in some cases.
· Additional fees for this type of advance.

· It can be used for personal use, small business funding and debt consolidation.

· P2P loans don’t need to be huge amounts of money. Leading P2P loan companies, such as our partners Lending Club and Prosper, offer $1,000 to $35,000 for personal loans. They offer up to $35,000 for small business loans, and debt consolidation up to $35,000. Current interest rates can range from just less than 6% all the way up to just over 35 percent.

· P2P loans carry several fees charged to the borrower. Typically, fees for these loans are lower than traditional loans. Transaction fees are usually 1% of the sale price. Loan origination fees, which are usually included in the rate, range from 0.5% to 5.00%.