Many small business owners need to borrow money to get their business started. There are many ways to get the capital you need, and the most important thing is to understand your financing options before choosing one.
A loan is a type of debt financing that allows a business to get cash upfront and repay it with interest over time. It comes in several forms, including term loans and equipment financing.
Equipment loans are financing options that allow businesses to purchase, repair, or upgrade their equipment. This can include medical, dental, and restaurant equipment; vehicles for commercial use; furniture, tools, electronics, and more.
Buying new or upgrading existing equipment is an excellent way to increase productivity and customer service. But it also requires a substantial investment.
The good news is that an equipment loan can help small business owners get the capital they need without spending cash from their revenue, allowing them to keep more money in their wallets for other expenses.
Qualifications for business equipment financing vary but typically include a credit score of at least 600 and the ability to secure the equipment with collateral. Applicants should have time in business for at least 12 months and annual revenue of $50,000 or more to qualify for the most favorable interest rates and repayment terms.
Some lenders may also require a personal guarantee or blanket lien on your other business assets. Those can put your business at risk if you default on the loan.
Lines of Credit
A business line of credit can be a good loan option for businesses with short-term working capital needs. Sometimes cash flow can be difficult to predict, especially when it comes to late invoice payments and unexpected expenses.
To qualify for a business line of credit, lenders typically evaluate financial statements and reports, as well as profit and revenue. Some banks ask to see extensive financial reports spanning several years.
A business line of credit is a flexible loan option that allows you to borrow money up to a set limit and use it for anything you need, then pay back some or all of it. Interest is usually charged on the funds you use, but only on that amount, not the total credit line.
If your business needs extra capital, there are several types of business loans to choose from. These can include term loans, lines of credit, equipment financing and SBA loans.
These loans can help businesses get the money they need to purchase new equipment, buy inventory or cover startup expenses. But it’s important to understand how they work before you apply for a loan.
For instance, some lenders require you to pledge collateral–something of value, such as accounts receivable or real estate–that they can seize if you default on your loan.
While this can be a good way to get the money you need, it can also put your personal assets at risk if you run into financial problems. Many lenders also require you to put up a personal guarantee, which can make it harder for you to repay the debt if your business fails.
Business Credit Cards
A business credit card is a revolving line of credit that can be used to make purchases for your company. Unlike personal cards, they usually have higher limits and offer rewards and benefits designed specifically for businesses.
If you want to avoid interest charges on a credit card, pay your balance off in full each month. Late payments and serious delinquencies can lower your business credit score and make it harder to obtain future loans.
Many small businesses use a business credit card as a way to keep track of spending and free up cash flow. It can also help with accounting and tax filings by keeping your business expenses separate from personal ones.
A good business credit card should offer a strong reward program that covers common spending categories, like office supplies, travel and dining. It should also come with a competitive rate of return on these purchases.