At some point, every business needs extra cash. Now is a great time to jump on the many business financing opportunities that are out there. Before, banks were hesitant to work with certain business types and industries, but more and more are willing to lend. In addition, alternative online lenders have stolen the show in recent years, offering many fast and flexible options.
Two of the most popular options – also the cheapest – are business loans and a business line of credit. Unsure of which one is right for your business? The following information will clear up any confusion and help you pick the financing that is right for your business.
A business loan offers your company a specific amount of money all at once. The amount is then repaid, plus interest, in pre-arranged monthly installments. Typically, you will have from 1-15 years to pay back the loan, and loans carry closing costs of 2%-7%. While the concept sounds easy enough, the application process and documentation requirements can be overwhelming and confusing.
A business line of credit allows you to choose how much money you wish to borrow, up to a pre—arranged maximum amount (similar to a credit card). You will only pay interest on the outstanding balance, not on any unused portion. An advantage of this option is that a business line of credit has minimal or no closing costs.
Which One is Right for You?
The best way to decide which option is right for you is to first determine why you need the money. If the purpose is long-term, a business loan might be a better option. For example, adding vehicles to your fleet, expanding your business, buying new equipment, etc. If your specific purpose is short-term, on the other hand, a line of credit may be the better solution. Short-term purposes often include financing receivables, marketing and making payroll.
How to Choose the Right Lender
Choosing a lender will depend on your business type and industry. Small businesses, online companies and industries that are high-risk often struggle to secure a traditional bank loan. Banks shy away from any business type or industry that they deem too risky. Some of the reasons for this label include: high chargeback rates, business startup (limited time in business), bad or no credit history, bankruptcy, etc.
If you need cash quickly, consider working with an alternative lender. These providers specialize in working with businesses that struggle to find cash solutions from traditional lenders. Their services are specifically tailored to meet each business type and industry’s needs. Plus, their application processes are known for being simple and hassle-free, and you can secure cash in as little as 24 hours.
Author Bio: As an account executive, Michael Hollis has funded millions by using alternative funding solutions. His experience and extensive knowledge of the industry has made him an expert in business lines of credit expert at First American Merchant.