Business Financing: Exploring Your Options

Regardless of the economic climate, many agree finding financing can be challenging.

Whether business owners are looking for start-up funds, money for expansion, or funding to tide them over, securing business financing is no walk in the park.

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Make no mistake about it, getting additional funding entails more than just knowing the latest SME loan interest rate or the possible funding sources you can turn to.

Ideally, you need to have all the bases covered if you want to secure the financing option that will best suit your company’s needs.

Below are some of the financing options available and the essentials you need to know about each.

Micro Loan

Even if you lack collateral or credit history, it does not necessarily mean you will never be able to get any funding help.

While involving only a small amount, it often requires less documentation and offers more flexible underwriting criteria.

Micro loans are often considered ideal for start-up entrepreneurs or businesses experiencing a capital gap but needs to secure additional funding to service a contract or purchase a new equipment.

Factoring

The financing method where you sell your receivables at a discount in exchange for upfront cash is called factoring.

It is often the funding option of choice for businesses that need to fill orders before they get paid.

Typically, if you are considering selling your receivables, you will need to pay a fee that is a percentage of the total amount you are going to borrow.

Bank Loans

If your business has a substantial cash flow and a robust credit history, getting a bank loan should be a breeze.

For many, bank loans are beneficial because they come with lower lending rates compared to other types of financing.

However, those who want to take this funding route should be willing to provide collateral as well as a detailed financial information. And that’s just for starters.

Lines of Credit

Majority of banks that offer bank loans also offer this type of financing option.

One of the enticing benefits line of credits offer is flexibility.

This setup is ideal if you want to take advantage of a business opportunity or spend money for a crucial business expenditure.

Utilizing a line of credit for business expenditures is also a great way to separate personal and business purchases and keep track of accounting.

Installment Loans

Installment loans are repaid through equal monthly payments covering both the interest and the principal.

With installment loans, the interest rate is calculated from the date the contract is signed to the loan’s final day.

This type of financial funding can be paid quarterly, half-yearly, or annually, when monthly payments are not feasible.

Balloon Loans

In balloon loans, the full amount is received but only the interest is paid off during the loan’s life cycle.

A “balloon” payment of the principal will be due on the loan’s final day.

In some cases, lenders will allow both the principal and the interest to be paid with a single “balloon” payment.

Balloon loans are ideal for scenarios where a business needs to wait for a particular date before payment for goods or services are received.

Balloon loans also share a lot of similarities with installment loans.

To ensure you get the right business funding suitable for your needs, it is crucial that you take all the essentials into account.

Essentials like SME loan interest rate, loan payment terms, likely sources, and other basics should be considered.

It it’s your first time to apply for a business loan, consider investing in the help of a loan broker so you’ll know the best options, get the best deals, and know the pros and cons of each.

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