If you're setting up a business, one of the most important aspects in the beginning is where to get the necessary funding. There is a number of options you can pursue, including business loans, personal loans, overdrafts, or merchant cash advances. Of course, what kind of funding you go for will depend on what kind of business you have, as different types of organisations will have different needs. Let's talk about some of these options.
Business Credit Card
A business credit card, as you may imagine, is a lot like a regular credit card. Except, in this case, it's not for personal expenses, but for business ones. Many people don't know that your business can also qualify for a credit card, but that enables you to separate business finances and personal finances.
Of course, since this is a credit card for business purposes, eligibility will be determined based on your business credit score. Alternatively - company assets. It's best to make sure that you keep your credit up to snuff.
A business credit card is an excellent option if you seek flexibility, because nothing dictates what you can and cannot spend the money on. You also benefit from purchase protection, which can come in handy when you buy services or goods.
Merchant Cash Advance
An interesting alternative to traditional financing for businesses is a merchant cash advance. The way this works is that you don't repay it like you would a normal loan. Instead of paying the money back in regular, equal instalments, including interest, you repay a percentage of your income from credit card and debit card transactions. The payments are made automatically either every day or every week.
That means that no matter what amount you bring in, you will always pay back the same percentage. That ensures that you are never in a position where you cannot afford to make the repayment. If you make less in one week, you repay less, and if you make more, the repayment will be proportionally higher. Instead of paying interest, you pay a previously agreed-upon percentage from sales.
This way, you know for sure you always have cash flow. Plus, you don't need to ensure that you have a good credit score, or assets to use to secure the loan. The loan amount is determined based on your projected sales, so the more you make from credit cards and debit cards, the more you can borrow.
As far as eligibility is concerned, you should know that different companies will have different criteria, but generally, your company should have been operating for a minimum of 4 to 6 months. You will probably also be asked for a year's worth of history of your credit card transactions.
We can't leave out one of the most common financing solutions for businesses, whether they're small start-ups or established enterprises. A business loan can help you out in numerous ways, as it can cover costs related to setting up a business, but also to business expansion. When you get a business loan, you can benefit from a certain amount of flexibility when it comes to repayment, a relatively extended repayment term, and the opportunity to improve cash flow.
You shouldn't encounter restrictions related to the type of business you are operating when applying for a business loan, but there are requirements for eligibility. Each lender has different criteria, so you will need to check and see what they ask for before applying to see if you qualify.
As you can see, if you are running a business - whether you're building a start-up from the ground up or you are trying to expand your current business - there are many resources you can take advantage of in order to obtain financing. There will always be a need for more funds, regardless of the niche your business is operating in and what kind of organisation you are running.
Setting up a business is a uniquely expensive process and you need to make sure you've got the funds to get on your feet, compensate employees, purchase stock if necessary, etc. in order to get the business up and running for the first few months. With so many financing options requiring a minimum operating time, that can be a challenge. But expansion can also be very financially demanding, so that will also require some additional funding in order to facilitate cash flow and cover any other expenses. Review the options and see what is the best one for your company.