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5 Loan Options and Pre-Application Considerations for Businesses

SMB financing
Photo credit: Chadaporn - stock.adobe.com

Shifting market demand, changing consumer behaviors and sales fluctuations may spur the need to open a new location, expand your current space or purchase new equipment. However, large projects often require funding that falls outside of existing budgets. Rounding up those resources can take time and effort, especially for business owners and founders who are already strapped for time and resources.

Not to mention, you don’t want to commit to a financial arrangement that will be tough to pay back later. Credit cards and banked funds may serve a purpose, but there are many options available in today’s market. A combination of resources, and some creativity, can help turn a building plan or upgrade into a reality. 

Exploring Possible Options

You may not always have cash flow available to fund projects, nor would you want to use available cash when other resources are available. These include everything from leasing to taking out a loan, using a line of credit, or simply asking others for help. Here are five common options you can consider:

Available Leasing Options

If you need business supplies or equipment, it may be possible to lease them instead of purchasing them. “Equipment can be leased through the manufacturer or supplier, or a leasing company,” explained Tom Thunstrom, small business finance analyst at Fit Small Business. It may be easier to lease rather than take out a loan, as the requirements for a lease are often not as rigid as those for a loan. Not to mention, at the end of the lease period, you can replace the equipment with newer models if desired. On the downside, interest rates may be higher than those attached to a loan. 

Traditional Business Loans

For a loan, “interest rates can be more favorable compared to leasing if a borrower has good credit,” Thunstrom said. “The disadvantages with trying to get a loan are approval times, which can take several weeks if not months; lender requirements, which can make getting a loan incredibly difficult for a new [business]; and credit requirements.” If your credit score is low, it could be tough to get approval for a loan.

The Small Business Administration (SBA) guarantees loans made through banks and some online lenders. If your business is newer or has average credit, this option may be feasible. However, approval times could be more than 90 days, and you’ll need to submit a business plan for the process. “The SBA has low upfront payments for many of their loans,” said Peyton Leonard, a finance expert with Loans.org. “They also offer a 10-year term length for the majority of their loans. A downside is that many of their loans require banks to put a lien on your home or personal belongings.”

Look into Lines of Credit

A business line of credit provides cash flow when you need it. These lines of credit “can be as low as $1,000 and as high as $250,000,” Leonard explained. They may be difficult to obtain, as the qualifications are often steep. “Also, having a line of credit is like having a credit card for your business,” Leonard added. “There are limits to how much you can use.”

Crowdfunding

Web sites that offer crowdsourcing typically ask you to share your story, the amount of money you’re trying to raise and how the funds will be used. “Traditional crowdfunding is not an investment, such as debt or equity, but rather more akin to a donation,” explained Adrian Mak, CEO of AdvisorSmith, a small business research website. As such, you won’t be expected to repay the amount given in cash. Instead, you might offer perks to those who contribute, such as exclusive access to products, experiences and discounts. “The hardest part of crowdfunding is finding backers and telling a compelling story,” Mak added. 

Before choosing a loan option, it can be helpful to look at your current budget, any extra cash resources and future sales forecasts. You might even speak with an advisor or loan officer about possibilities that could best suit your place. The extra legwork upfront can reap better benefits in the long term.

Informal Lending

Of course, if you want to steer clear from the traditional route, there is always the option of borrowing money from, friends or colleagues. But proceed with caution. It may seem easy to set up a loose arrangement. Keeping details vague, however, can lead to struggles later. “Not having a clear agreement that’s in writing can yield some pretty ugly battles and legal issues down the road,” said Tom Thunstrom, a small business finance analyst at Fit Small Business

For best results, get the following in writing:

  • The amount borrowed
  • Whether the friend or family member is getting any ownership stake
  • How the repayment will be made
  • The timeline for the repayment


If possible, have an attorney vet the agreement to make sure it is fair to everyone. “It may cost money on the front end, but it will more often save the potential for issues later,” Thunstrom advised.

 

This article was adapted from a piece initially written by Rachel Hartman for Pizza Today. Hartman is a freelance writer who covers small business, finance and lifestyle topics.

5 Loan Options and Pre-Application Considerations for Businesses

by | Dec 11, 2023

SMB financing

Shifting market demand, changing consumer behaviors and sales fluctuations may spur the need to open a new location, expand your current space or purchase new equipment. However, large projects often require funding that falls outside of existing budgets. Rounding up those resources can take time and effort, especially for business owners and founders who are already strapped for time and resources.

Not to mention, you don’t want to commit to a financial arrangement that will be tough to pay back later. Credit cards and banked funds may serve a purpose, but there are many options available in today’s market. A combination of resources, and some creativity, can help turn a building plan or upgrade into a reality. 

Exploring Possible Options

You may not always have cash flow available to fund projects, nor would you want to use available cash when other resources are available. These include everything from leasing to taking out a loan, using a line of credit, or simply asking others for help. Here are five common options you can consider:

Available Leasing Options

If you need business supplies or equipment, it may be possible to lease them instead of purchasing them. “Equipment can be leased through the manufacturer or supplier, or a leasing company,” explained Tom Thunstrom, small business finance analyst at Fit Small Business. It may be easier to lease rather than take out a loan, as the requirements for a lease are often not as rigid as those for a loan. Not to mention, at the end of the lease period, you can replace the equipment with newer models if desired. On the downside, interest rates may be higher than those attached to a loan. 

Traditional Business Loans

For a loan, “interest rates can be more favorable compared to leasing if a borrower has good credit,” Thunstrom said. “The disadvantages with trying to get a loan are approval times, which can take several weeks if not months; lender requirements, which can make getting a loan incredibly difficult for a new [business]; and credit requirements.” If your credit score is low, it could be tough to get approval for a loan.

The Small Business Administration (SBA) guarantees loans made through banks and some online lenders. If your business is newer or has average credit, this option may be feasible. However, approval times could be more than 90 days, and you’ll need to submit a business plan for the process. “The SBA has low upfront payments for many of their loans,” said Peyton Leonard, a finance expert with Loans.org. “They also offer a 10-year term length for the majority of their loans. A downside is that many of their loans require banks to put a lien on your home or personal belongings.”

Look into Lines of Credit

A business line of credit provides cash flow when you need it. These lines of credit “can be as low as $1,000 and as high as $250,000,” Leonard explained. They may be difficult to obtain, as the qualifications are often steep. “Also, having a line of credit is like having a credit card for your business,” Leonard added. “There are limits to how much you can use.”

Crowdfunding

Web sites that offer crowdsourcing typically ask you to share your story, the amount of money you’re trying to raise and how the funds will be used. “Traditional crowdfunding is not an investment, such as debt or equity, but rather more akin to a donation,” explained Adrian Mak, CEO of AdvisorSmith, a small business research website. As such, you won’t be expected to repay the amount given in cash. Instead, you might offer perks to those who contribute, such as exclusive access to products, experiences and discounts. “The hardest part of crowdfunding is finding backers and telling a compelling story,” Mak added. 

Before choosing a loan option, it can be helpful to look at your current budget, any extra cash resources and future sales forecasts. You might even speak with an advisor or loan officer about possibilities that could best suit your place. The extra legwork upfront can reap better benefits in the long term.

Informal Lending

Of course, if you want to steer clear from the traditional route, there is always the option of borrowing money from, friends or colleagues. But proceed with caution. It may seem easy to set up a loose arrangement. Keeping details vague, however, can lead to struggles later. “Not having a clear agreement that’s in writing can yield some pretty ugly battles and legal issues down the road,” said Tom Thunstrom, a small business finance analyst at Fit Small Business

For best results, get the following in writing:

  • The amount borrowed
  • Whether the friend or family member is getting any ownership stake
  • How the repayment will be made
  • The timeline for the repayment


If possible, have an attorney vet the agreement to make sure it is fair to everyone. “It may cost money on the front end, but it will more often save the potential for issues later,” Thunstrom advised.

 

This article was adapted from a piece initially written by Rachel Hartman for Pizza Today. Hartman is a freelance writer who covers small business, finance and lifestyle topics.