By DeVry University
November 3, 2022
10 min read
November 3, 2022
10 min read
Also known as factoring, this is a form of short-term financing. It involves selling your receivables – the invoices you’ve sent to customers that are unpaid – to a lender so you can receive payment now, rather than waiting for customers to pay you.
The lender takes on the risk and provides your business with cash in exchange for a fee. The goal here is improved cash flow, but you may end up paying more in the long run for this type of credit.
Meant for the short term rather than long-term investment needs, these are used to finance the day-to-day operations of your business. This type of loan is typically linked to your personal credit, so be sure to stay current with your payments.
Here you’ll get a lump sum of capital that you’ll pay back at a fixed interest rate over a specific period of time. In many cases, this type of loan is repaid in five years and used to fund a specific small business investment.
This is a form of small business lending that helps you replace existing equipment or finance new equipment to help a business grow or diversify. A manufacturer, for example, might use an equipment loan to buy new machinery to expand its production capacity.
Equipment loans typically require less documentation than other small business loans so the funding can be secured relatively quickly.
This is similar to a personal credit card but may include additional reporting features that help the small business owner categorize purchases and track spending. It may also feature a rewards program to help you save money on regular purchases like office supplies.
An SBA loan is a small business loan guaranteed by the U.S. Small Business Administration, which matches you with a lender that fits with your company’s size and needs. The guarantee means that if you can’t repay the loan, the SBA will pay out the guaranteed amount. Because of this guarantee, SBA loans can be tougher to get than other kinds of business loans, but they can be helpful to small business owners because they often come with benefits such as flexible down payment options, lower overheads requirements, longer terms and lower payment rates.
This is an offering typically given by traditional banks. As with a credit card, you can borrow up to a certain limit and pay interest only on the amount you’ve borrowed.
After opening a business line of credit, you’ll be able to draw funds and repay them as often as you’d like, as long as you don’t exceed your credit limit.
Your driver’s license
A voided business check
Bank statements
Profit and loss statements
Business and personal tax returns
A business plan
Why include a business plan? It provides a buttoned-down prospectus of how you intend to use the money and how you believe it will help your business grow. The plan typically includes a business description, product or service description, market analysis, management team, sales and marketing strategy, implementation methods, financial plans and financial projections.
How much you should borrow with your business loan is up to you and your business’s needs. How much you can potentially be approved for can also be affected by several factors, including your business’s annual gross sales, existing debt and creditworthiness. What lenders are willing to lend out can also vary according to your business’s annual revenue. Your company should be cash flow positive after accounting for all debt payments.
Whether or not your able to get approved for a business loan will vary based on a number of factors. If you have a strong personal credit score and a profitable business that’s been operating for at least two years, lenders may consider you worthy of applying for the loan. Remember, this is just a place to start with no guarantee of approval.
A predatory lender is one that puts profits ahead of concerns about the borrower’s ability to repay the loan. When evaluating a potential lender, keep an eye on how they behave with you regarding the loan. Does the loan sound too good to be true? Are you being pressured to sign the loan agreement? Another sign can be extremely high interest rates on short-term loans.
Credible lenders run a credit check on the borrower and ask them to verify their income to determine what monthly payments they can afford. Predatory lenders make their money with high interest rates, fees and are often less concerned with the borrower’s ability to repay the loan.
A Google search for the lender should reveal any consumer complaints. Also check with the Consumer Financial Protection Bureau, an agency that implements and enforces federal consumer financial law and ensures that markets for consumer financial products are fair, transparent and competitive.
Understanding how small business lending works, the costs involved and what loan options will work best for your business takes time and research. Be sure to do your homework and don’t forget to compare the APR, which, mentioned earlier includes the interest rate and any associated fees.
Borrowing for business needs like expansion, real estate acquisition, equipment or working capital can be a detailed process, but if broken down into a simple step-by-step process, it’s not as daunting as it may seem. Each lender will have their own process for potential borrows to follow. The five steps outlined earlier in this article are a good place to start in understanding what to expect from this process.
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In New York, DeVry University operates as DeVry College of New York. DeVry University is accredited by The Higher Learning Commission (HLC), www.hlcommission.org. The University’s Keller Graduate School of Management is included in this accreditation. DeVry is certified to operate by the State Council of Higher Education for Virginia. Arlington Campus: 1400 Crystal Dr., Ste. 120, Arlington, VA 22202. DeVry University is authorized for operation as a postsecondary educational institution by the Tennessee Higher Education Commission, www.tn.gov/thec. Naperville Campus: 1200 E. Diehl Rd., Naperville, IL 60563. Unresolved complaints may be reported to the Illinois Board of Higher Education through the online compliant system https://complaints.ibhe.org/. View DeVry University’s complaint process https://www.devry.edu/compliance/student-complaint-procedure.html Program availability varies by location. In site-based programs, students will be required to take a substantial amount of coursework online to complete their program.
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